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joining us now we've got mark Mobius co-founder and partner at Mobius Capital Partners is joining us right now on the show mark thanks very much and a good morning to you from India we're talking about emerging markets now we've got a situation where prices are depressed valuations are correcting and there is some amount of economic distress across the board would you characterize you know emerging markets right now at being at its weakest or there is more pain left I think the pending on the market there is more pain and you look at some of the markets like Brazil actually Brazil is up quite significantly on the back of the recent election so it's really a stock pickers market at this stage of the game where we have to go into different countries and pick stocks on the basis of their fundamentals rather than just looking at the overall index in the case of India that's particularly true as you know the market is down by 16 17 percent from the high point this year and I think it probably has a little bit more to go on the index but if you look at individual stocks there are some great opportunities all right so as a market what's your pecking order within the emerging market basket do you stock India amongst the top two yes India's right up there and Brazil's the other Brazilian India the two of the large markets we're focusing on but then of the smaller markets countries like turkey Mexico Korea Vietnam would be one of the frontier markets so we're looking at those are the ones that we would be particularly interested in now mr.
Moebius good morning if 2017 was all about global GDP growth helping all the export oriented nations do well 2018 now is starting to turn the corner on global growth is showing signs of slowing down maybe the u.s. GDP might do okay but the other markets not quite sure off do you think EMS can perform well in export oriented economies can still perform well in that light yes I do the reason why I say that is that as you know the US market is on a correction mode now and I believe the US market probably has more to go down we've seen this long bull market in the US and now we're seeing a significant correction when that happens of course money begins to flow out of the US market and where does it go it has to go to overseas markets and that includes of course emerging markets and we're beginning to see some of that flow already taking place in a small amount but still it's a trend that I think will continue and of course that will benefit some of these markets particularly those markets that are down significantly where there are lots of bargains there'll be bargain hunters looking at those market particularly India Oh interesting that's that's music to the ears mr.
movius just one small question Oh months months playing the devil's advocate if you will the bear camp would say that the US economy while the markets may have come off the US economy seems if not red-hot then reasonably hot and the wage growth out there might lead the Fed to hike rates at a much faster clip then what the Fed itself estimates right now and the Fed has said it'll be data dependent should we have a faster trajectory of rate hikes would that mean more fun outflows from the EMS and could that spoil the party a bit and not necessarily because you've seen rates in the emerging countries going up as well because these countries wanted to defend their currencies and they've reacted to what's happening in the US so as US rates go up everybody else raises their rates as well now I'm not saying that's necessarily a healthy development for many of these emerging countries politically India I'd like to see lower rates but the reality is that the currencies will then be protected it won't go down as much as u.s.
dollars going up so I think there'll be a move away from dollars as a result of correction in the US market and as a result of a topping out of the US dollar strength mr. moopheus what do you make then of this last two months of outflows that we've seen from key emerging markets India for all its positives the last two months has been badgered on the fund outflow for an October being arguably the worst month in the calendar year thus far yes of course there's no question that people have reacted to what's happening in the US expectation of higher rates in the US but I think going forward it's going to be a different picture a lot by the way depends on the reforms that Modi government is continuing to implement I think that would make a big big difference for example allowing money to come into India is now something that the government has to pay attention to I know in our case our funds that had to wait six months in order to enter the Indian market that is much too long and the government has to implement reforms to change that situation mr.
mobis to make an investment called liquidity is one of the key variables to look at so while making an investment call and choosing your country to invest in from the emerging market basket where liquidity at discount juncture is a little bit sea versus what liquidity is in the u.s. how does one take a call based on that because in India itself there is a live slammer for squeeze yeah there's no question liquidity is critical in many of these markets of course in our case we do look at small and medium-sized companies as having some really good opportunities and liquidity is limited in those countries and those companies but we feel that if you're a long-term investor and the quiddity is no big problem because as these if you're making the right selections the prices will go up and liquidity will follow so it's something that is sometimes an advantage if you're able to buy cheap stocks that have relatively low liquidity but going to increase the liquidity going forward but there's no question that the big markets get more of the money because of liquidity a stock up with the other you know factor which is weighing down and rattling investment sentiment and that's the trade war and a full-blown trade war between China and us obviously is going to dampen sentiments across emerging markets currently we are seeing growth rates coming off in China as well third quarter GDP print was a little bit on the lower side at six point five percent since the fourth quarter number is going to be immensely important according to you or what are the implications and the repercussions of a full-blown trade war a full-blown trade war between the US and China I believe will have a beneficial effect on a number of other countries including India because a lot of the exports now coming out of China will be switched to these other countries Vietnam is a good example Vietnam is now major exporter of shoes sports shoes to the US and the rest of the world a lot of that manufacturing has been already transferred to these other countries and I believe that's going to be implemented going forward Mexico for example will be a beneficiary of this trend so I think we've got a look at the negatives but also the positives in terms of what happens with this trade war situation mr.
Moebius let's talk about India you've mentioned twice in this interaction already that or at least my assumption is that you or my takeaways that you like India and these valuations with the kind of twin deficit issues that everybody in everybody's been talking about in the fact that we have a busy election calendar coming up would you believe the the levels give you comfort enough that we will tide over all of these uncertainties yeah well the situation now is that India is on a reform track whether Modi gets stronger politically or weaker it really doesn't matter that much because whoever gets into power will have to continue the reform process because the Indian public is demanding it with smartphones and with the communications revolution people really know what's going on and they're going to be demanding more from their governments so that's one thing the other thing to remember is that India's a collection of states individual states that are competing each other poor investment that's a very positive development for foreign investors in particular because they can pick and choose which state is going to offer the best deal to them so for direct investors this is a very very positive situation and I noticed that even in Mumbai I was just a new Mumbai as you know there's been increasing investment coming in on outsourcing people coming in to do computer operations call answering etc so I believe that's going to continue and it doesn't necessarily show up on the trade figures but it will show up eventually on the balance of payments situation interesting so am I to presume that you are looking at India a lot more actively than what you would have been otherwise and whether you're looking at India very very selectively or do you believe the larger market could itself or the course of the next three or four years give even foreign investors better returns because I think that's been the bugbear of the foreign investor that the rupee depreciation has led to almost negligible returns if at all dollar denominated yeah the initial reaction to these situation of aloha rupiah rupee and lower market because people get fearful and they exit but there are other investors bargain hunters like ourselves they get very very interested when they see these declines so I think you're gonna see the overall market doing much much better next year and going forward and I believe that for individual stocks there gonna be some big winners which is of course what we're looking for what's your growth projection for India do you feel that you know our targeted growth of about seven and a half will be met and on the other hand one aspect is crude oil prices that are really important from from the twin deficit point of view for us as well and from the economic perspective so how do you think these two elements are gonna play out I think growth is going to continue at a higher level about 7% which is incredible growth for country the size of India I believe that on the price front you can probably see higher prices for a whole range of items simply because per capita incomes are rising in India and of course the interesting thing that is developing is with the reform in the distribution system in India you're going to see big advantages for the retail trade and eventually for consumers Moebius at this juncture while we've spoken about a whole host of things are there any one or two key risks that you see that could probably stall or or worsen the the selling route that we're in right now in terms of halting the selling right the trend I believe something happening on the election front would have an impact if for example you see a much much stronger Modi on the election front then the market will react positively if that does not happen then you'll have a negative impact on the market so I think the upcoming elections are going to be quite significant and we have to watch that carefully but again as I said even with a temporary downturn as a result of maybe moody looking weaker in the coming elections the longer term trend is definitely towards reform and that'll be good for the country mr.
movies who spoke about this being an opportunity where prices are a bit depressed to enter the markets right now one particular space that is awfully it come under the scanner has been the financial space within India I are you you know being able to garner whether or not this is the opportune sector to be in right now considering the kind of sell-off you've seen considering the valuations that have come up obviously the problems still persist and tackling of it is going to be more important we are looking at that sector simply because there's so many bargains we had in in the in the face of what's happened the big downturn you've had and interestingly enough we are looking very closely at the non banking financial sector because those stocks have really been banded down and they'll be survivors and those that survive will have bigger market shares so I think there are some tremendous opportunities there of course we have to watch very very carefully we have to look at the balance sheets to make sure we're getting into very strong companies but the opportunities are definitely there you see you looked at countless sat cycles I think the fear in this nbofc space in particular that people have is that because of the higher cost of capital or otherwise the growth trajectory which people had priced in for these companies will slow down materially having looked at countless such cycles do you believe that the market is a lot more fearful than what it needs to be what is this fear justified no I think that fear is justified because with higher rates many companies are going to be in deep trouble companies that have weak balance sheets that are have high debts many of them will go bust will not be able to survive but the opportunity will be with the survivors those companies that are not heavily leveraged have strong balance sheets and able to withstand these higher rates one more question from Lyon mr.
Moebius and that is on how do you look at the next three years and from which funnel because a lot of people that Bonavia started speaking to have been saying that the last five years or the last seven years in the Indian growth story belong to the retail oriented spaces so retail focused banks did well this creationary consumer discretionary pockets did very well in India or so on so forth but the investment led spaces did not do well and with reason and maybe now we will see the reimagines of the investment led sector so bead infrastructure beat capital goods or beat the corporate facing banks which hitherto haven't at the great time have you looked at those market that deeply in the recent past and do you kind of second at thought yes I I'm aware of that and thinking but I think at the end of the day even with the problems that you've had on the consumer side the growth of the consumer companies consumer oriented companies consumer oriented sectors is going to do very well and probably better than the others so I must remember that there is a revolution taking place in the retail sector in India and with rising incomes they're going to be continually great operations and great opportunities in that sector that mr.
morbus it was a pleasure chatting with you this morning thanks so very much for joining us and sharing your thoughts and views with us here on the show appreciate it
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