Emerging markets are no riskier than their developed market counterparts, according to renowned investor Mark Mobius, who said there have been as many issues in the US and Europe as in Asia and South America in recent years.
Speaking on the Schroder Value Perspective podcast, the founder of Mobius Capital Management said the big scandals that have rocked the world over the past decade or so have come from America.
“Look at the US, which is supposed to be the most developed, or at least one of the most developed, markets. Look at the scandals we have been confronted with, where billions of dollars have been lost as a result of corrupt practices in one direction or another,” he said.
He pointed to the recent failure of cryptocurrency exchange FTX and its former chief executive officer Sam Bankman-Fried, who was convicted of fraud for stealing billions of dollars from FTX’s customers.
This was followed by the failure of Silicon Valley Bank (SVB), the second-largest US banking collapse in history. SVB focused on the venture capital industry, taking in deposits from technology companies and start-ups, but did not have the systems and financial controls in place to deal with its growth.
This shows “the emerging markets are not exceptional” when it comes to market scandals, said Mobius.
“While a lot of people may think, ‘oh, emerging markets are dangerous as there is corruption, there are problems, there are scandals’, one of the things I try to emphasise is that these scandals are all over the map in every country,” he noted.
Another misconception regarding emerging markets is the idea that they are dependent upon developed markets for trade. While this may have been true in the past, it is no longer the case.
“If you look at trade flows – just looking at China alone – you’ll see how trade to and from China has changed dramatically over the past 10 or 20 years, with China widening its trade partners around the world and doing more trade with countries in Southeast Asia, Africa, Latin America and so forth,” the veteran stockpicker said.
“So I think the idea these emerging markets depend only on the US or Europe is changing rapidly, actually – you are seeing more and more diversity of trade flows.”
The US remains the largest market for these emerging countries, he admitted, but China and India are growing in importance, leading to a much more diversified trade network.
This is something Mobius said he “never imagined” at the start of his career, when he expected countries would “depend on the US for most of their trade”.
One of the biggest changes throughout his career has been the efficiency of markets, thanks to the rise in technology that has enabled information to be disseminated faster and in more volume than ever before.
“I remember when we first were investing in India, it was an ‘open outcry business’ – it was pandemonium, similar to what you have in the New York Stock Exchange, I guess – but the difference was that settlement of securities trading was done manually,” said Mobius.
“In other words, it was a physical delivery – if you bought a stock, you would have to get the actual stock certificate. And, if you went to custodian banks, paper was flying all over the place. It was such a mess.”
In some cases, it could take three or four days for a trade to be settled. Thankfully, this has all gone now with the introduction of computerised trading, he said, adding that it is a great example of “where technology has really changed the whole way things are done”.
Another positive has been the rise in their capital markets, allowing private businesses to thrive. The clearest example of this is in China, where the country “opened the doors for private enterprise to grow”. “China would never be where it is today if they had continued under the Maoist idea of communism,” he said.
Russia and India have also done this, creating a much higher standard of living for people as a result.
However there is still work to be done, he noted. Indeed, what has not changed is the level of bureaucracy, which can make it more difficult for private enterprises.
“In some countries – not all, but in some – you have politicians who want to go after companies for one reason or another or they want to make changes in taxes and so on. These kinds of things don’t change overnight,” he said.