When the markets opened after the Eid Al Adha holidays, UAE stocks "bombed out" on the first two days of this month in the aftermath of Dubai World's debt repayment standstill request. But in faraway Hong Kong a fund manager was indeed gleeful.
Mark Mobius and his team at Templeton Asset Management were piling in shares of Emaar Properties and, also, of some banks in Abu Dhabi. In contrast, closer home, several of the region's fund managers, who were interviewed during that week for a Gulf News feature entitled "Equities still remain the preferred play," were largely shunning stocks of real estate companies and financial services.
Emaar, the Arab world's largest developer, had plunged 19 per cent in those two trading sessions. The Dubai Financial Market General Index had sunk 13 per cent and the Abu Dhabi Securities Exchange Index had slumped 12 per cent during the same period.
Confident that Dubai World would be supported by the UAE Central Bank to tackle the debt repayment issue, the executive chairman of Templeton Asset Management was far from discouraged by the tumbling prices all around and across sectors.
In fact, it had the opposite effect on him.
"Yes, of course it [the fallout from the debt restructuring issue] encouraged us to come down when prices were going limit down," said Mobius, during a roundtable discussion with local reporters on Thursday. "These were very good opportunities. Opportunities like that don't come very often. And we try to increase our holdings [during such times]."
Going forward, Mobius, who oversees more than $30 billion (Dh110.19 billion) in emerging markets assets, including the frontier markets funds, views Dubai, the UAE, the Gulf region and the wider Middle East and North Africa, in optimistic terms as an investment destination in the longer term.
That should encourage those investors, who are less sanguine about the future of the local markets and, more so, of some sectors which have been set aside because of their weak performance in the aftermath of the global dounturn and real estate correction in Dubai in the past one year.
Investment Guidelines
Sceptical investors have to understand his rationale towards buying any particular stock and in any market for that matter. As he spoke, he kept reiterating on three basic investment guidelines: determine what's the right price for the stock, look at each company on its merit and be invested for the longer term and that to him means three to five years. But he did add later when discussing short- and long-term debt, describing the former as a problem, but that long term debt with companies and governments that have good cash flow should not be a problem.
Talking about the emerging markets, there are two areas which he thinks will perform well.
First is the consumer sector because, he argues, the per capita income is going up at a pretty fast pace in these markets in particular.
"If you look at a billion people in India, a billion people in China, you don't need many of those people to have a higher per capita income to drive an incredible consumption boon," he explains.
The second sector which he believes is going to witness robust growth is commodities.
"We got to be aware of the fact that all of these commodities, whether it be oil, iron-ore, nickel, palladium, platinum — all these prices will continue an upward trend. For that reason, we are focusing on these commodities," Mobius says.
Templeton's frontier funds, a subset of the emerging markets segment, is relatively young and currently only about $200 million is invested in them, he says.
Nigeria and Vietnam are the two biggest markets for his frontier funds. Middle Eastern countries are very much a part of them, with Saudi Arabia and Dubai being the two main ones at this stage, he says. The funds also invest in Abu Dhabi, Kuwait, Oman, Qatar, Libya and Algeria, among others, in the larger Middle East. The privatisation programmes going in Algeria and Libya have piqued his interest quite a bit and he is positive on these two markets.
"By the way, we are putting some of our other funds into Saudi Arabia and Dubai," he adds. "Our investments in them [Dubai and Saudi Arabia] is not only limited to the frontier funds but also to other emerging markets funds. But at this stage, it is really small."
What makes Dubai and Saudi Arabia stand out among the Middle Eastern markets?
Starting with Dubai's debt restructuring issue, he seems to be least worried about it. He feels there's lot of money supply, with the central bank here expected to inject capital when needed as elsewhere. Also, there are a lot of risk takers, he adds.
"We are very, very positive on how Dubai would be able to solve its debt restructuring and we still are very confident," says Mobius, who has often been dubbed by the press as the "emerging markets guru."
In fact, the debt issue that led markets to tumble offered him good buying opportunities from a "longer range point of view".
"Yes, I would say now it's a good environment with prices coming down. Of course, the negative news and the problems will not go away. There will be continuing concern about the debt ratings and so forth and so on," he adds, hoping that moving ahead, debt will be managed prudently.
But does he think, given the latest debt restructuring issue, investors and lenders might shy away. And how long would it take for the markets to get back the faith of foreign investors?
Move towards transparency
He strongly believes Dubai will continue to lead the move towards greater disclosure and transparency.
"The fact of the recent announcement by the Dubai government changes the colour immediately," Mobius says. "If you have this pressure of money supply building up, banks have to eventually start lending again. They must find places to lend and if the credit rating of Dubai and Dubai World improves on the back of their [bond] paying off, then you can have a very fast reversal.
"And now with the interest rates where they are now, many banks in the region, are not paying anything for the deposits — it's zero. So they can lend at three [per cent]. That's not too bad."
It's not the debt level of Dubai that worries him. Concern which is outside the control of Dubai can affect its growth.
"What is of greater concern is the possibility of global trade war — global restriction of trade which would hit Dubai badly," Mobius says. "Because that could lead to lower business for the ports, which is important, low tourism etc. For Dubai, you need an open, a very free flow of goods and people."
But there could be something more inward to consider.
"The other thing I would say is a worry here is any backtracking on liberalisation — if there's any move to become more restrictive, more conservative that would tend to discourage investment."
He also points to a specific weakness: censorship of the media.
"They have got to become more open," he says. "And I realise there are religious constraints and so forth. The degree to which they can become more liberal in that respect will help them in attracting people and attracting ideas and opening up the financial system."
Sectors favoured
So what's he investing in the local and regional markets?
One can't miss property, the Hong Kong-based fund manager says.
"You got to be in property. The other area would be in diversified companies…that are globally diversified like the ports," he says.
Without recommending stocks, he points to the factor that influences him to enter certain stocks or increase holdings in them.
"I can just say that we are increasing our holdings here at the right price. I mean we have certain price constraints," he adds.
He expects a boom in Dubai's tourism and knowledge industries. For tourism to flourish, though, he says, hotels have to be competitively priced.
"I would like to see some hotel rates come down," Mobius says. "If hotel rates come down, then the flow of visitors will increase. $300 a night, $400 a night, it's crazy."
Coming to Saudi Arabia, Mobius reminds us about the tremendous building boom going on there. He is impressed with the efforts the largest Gulf country is making to get its debts paid off, putting it on a better financial footing.
"We think a lot of the massive projects that they are planning will continue to move ahead; with current oil prices at these levels, their income should be pretty good," Mobius says.
Talking about sectors, he says, there are some robust consumer goods companies in Saudi Arabia which are attractive buys.
But as a developing market, there is a concern about Saudi Arabia — one that has been a common refrain among foreign institutional investors for some time now.
"We would like to see Saudi Arabia liberalised so that we can go there directly. Because now we have this problem of going through these P loans [indirectly through swap agreements], which we don't particularly like. They assured us — we were there last week — they would be liberalising."
