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THE PHILIPPINES figures in investors’ maps but a combination of a small market, expensive stocks and too few initial public and follow-on offerings is working against its favor, investment guru Mark Mobius yesterday said.
And while there are risks in investing in any emerging market, government intervention in private business dealings in the Philippines is particularly vexing, Mr. Mobius added.
The executive chairman of the Templeton Emerging Markets Group at Franklin Templeton Investments, Mr. Mobius has consistently championed emerging markets as pockets of investment opportunities.
Franklin Templeton is a global investment management firm handling around $736 billion in assets as of May 31. Templeton Emerging Markets Group, which invests solely in equities, accounts for some $54 billion.
Mr. Mobius gave a talk for investors yesterday — “Emerging Markets Vision 2020” — upon the invitation of ATR KimEng Asset Management, which acts as Templeton’s representative in the Philippines.
He told reporters that investors remained “underweight” on emerging market stocks but this is likely to change with countries such as China and India expected to continue growing strongly.
“If an economy is growing, then companies have much better opportunity to grow,” he said.
The Philippines, Mr. Mobius noted, is expected to grow respectably this year while inflation will be manageable. He added that the real deposit rate — the deposit rate minus inflation — is in negative territory, which is “good for the stock market.”
The Philippines, however, faces “big challenges” and he ticked off low market capitalization, low daily turnover, few listed companies, few firms planning listings and follow-on offerings, and expensive stocks as factors holding back investors.
“It’s a small market in relation to all markets we’re in,” he told BusinessWorld. “Market capitalization is small, turnover is relatively small and stocks are relatively expensive.”
“Because of that combination, we are not spending as much time [in the Philippines compared to other markets]. But we’re definitely interested.”
Templeton, he said during the press briefing, needs “to see more IPOs (initial public offerings) and more activity.”
Mr. Mobius said government intervention in private business was also a problem.
“There are risks anywhere; in any country, there are risks,” he said.
“In the Philippines, they’re the same: the regulatory environment, the tax environment, labor unrest and government intervention in some way or another.”
“But government intervention [is more crippling]. If a company is tied up in a legal case here, you’re talking about a lot of money being spent.”
“This can be remedied,” he stressed, noting that other countries managed to simplify their rules and regulations and set up one-stop centers for investors.
“You can do it in a way that’s attractive for companies,” he said.
In the Philippines, Mr. Mobius said Templeton, hewing to its “consumer” and “commodities” investment tack, had made investments in mining, oil and agriculture firms, and companies engaged retail and wholesale and the production of consumer products.
He did not name these companies.
Mr. Mobius said Templeton, which he described as a “stock picker,” chooses companies to invest in based on their projected net earnings in five years, corporate governance, book value, leverage and return on equity.
He claimed that by 2020, there would be more investment opportunities in emerging markets, particularly in China and India, but also the Philippines.
“A lot of demand will need to be satisfied. What percentage of the population does not have proper housing, refrigeration, air-conditioning, and so on? There will be tremendous opportunities,” he pointed out.
Philippine investors can take advantage of these by putting money in funds that are invested in emerging markets.
“To do it themselves is very difficult,” Mr. Mobius claimed.
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By: Judy T. Gulane
Source: Business World, July 25, 2011
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