Templeton Manager Is Back to Buying Asia

You’d think Templeton Funds’ Mark Mobius would have learned his lesson.

Even after the first wave of currency devaluations that slammed stock markets throughout Asia last year, the impresario of emerging-markets investing continued to plow fresh money into such countries as Thailand and South Korea.

The result: His Templeton Developing Markets funds sank 25% in the fourth quarter of 1997, while their cushion of cash, once about 14% of assets, dried up to just 3%.

More than half a year later, Mobius has replenished his cash, which now totals about 20% of the funds’ assets. He did it by selling investments in Portugal and Greece, markets he believes are now fully valued.

And guess what he plans to do with that cash?

That’s right--plow it back into emerging markets, including some in Asia, until the fund is fully invested. Mobius thinks he can accomplish this by year’s end.

Even as many Asian markets are hitting multiyear lows again, and show no sign of pulling out of their horrendous bear markets, “you have to start buying when things are bad,” Mobius says.

“When the bull market in emerging markets starts, prices are going to run away from you in a second.”

Mobius expects global emerging markets in general to under-perform for another year or so, given that the average bear market in emerging countries tends to last a little less than two years.

Ironically, what would make Mobius reconsider the potential downside in emerging markets this time isn’t more trouble in Asia. Rather, he worries about trouble in the United States--namely, the prospect of a domestic stock market meltdown.

“The United States is a wellspring of consumption,” Mobius says. Without U.S. consumers to purchase Asian exports, Asian companies and countries can’t recover, he says--”and confidence in the region won’t return.”

Like all emerging-markets funds, the Templeton Developing Markets portfolios, I and II, are deep in red ink. Both are down about 23% year-to-date and 44% over the last 12 months.

(The two funds own the same securities but have different fee structures.)

The older of the two, Developing Markets I, has produced a minuscule return of 1.2% annually over the last five years.

That’s actually better than the average emerging-markets fund, which has lost money in the period.

Still, “it’s a very ugly time,” Mobius admits.

So why should investors even bother with these markets--especially given their high risk?

Because the upside--when it comes--can be dramatic, Mobius responds. In 1993 the average emerging-markets fund gained 72.2%, beating the U.S. Standard & Poor’s 500 index by an incredible 62.1 percentage points.

Templeton Developing Markets I did even better, advancing 74.5% for the year.

Because bull markets in emerging countries tend to be just as short as the bear markets--and very explosive--by the time a trend develops, many investors will jump aboard too late.

“That’s why you have to be a long-term investor with patience,” Mobius says.

Mobius, who has split the funds’ assets about evenly among Asian, Latin American and Eastern European markets, says there are values to be found today in South Africa, Poland and parts of Latin America, among other regions.

In Asia, he thinks good but beaten-down companies can be found in Thailand, South Korea, Hong Kong and even Indonesia.

In Thailand, for instance, he likes a couple of the big banks--Bangkok Bank and Thailand Farmer’s Bank. “So many smaller players have collapsed” in the Thai banking industry, Mobius says. “These two are going to be [among] the handful of survivors, and once things get better they’ll be well-positioned to dominate.”

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Emerging-Markets’ Nightmare

The Templeton emerging-markets stock funds managed by Mark Mobius have lost nearly half their value over the last year, hurt in large part by Asian markets’ collapse. The funds’ year-to-date and one-year returns, and annualized five-year returns, through Friday, along with industry averages for emerging-markets funds and foreign-stock funds:

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Templeton fund YTD* 1 yr.* 5 yr.* Assets, in millions Developing Markets I -22.8% -44.3% 1.2% $2,681 Developing Markets II -23.1 -44.9 NA 348 Institutional Emerging Mkts -23.4 -46.2 -1.8 1,805 Avg. emerging-markets fund -20.0 -38.3 -1.8 Avg. foreign fund +12.5 +2.7 +10.3

*--*

NA: Not available (fund did not exist for entire period)

*Total return

Source: Morningstar Inc.