Latin Finance - May 2008 - 86

mark mobius those countries there are very strong regional dialects.” Mobius says the LatAm work ethic is not worse than in Asia. “I don’t believe there are any cultural reasons why Latin America should be different from Asia,” he says. “Latin Americans are not intrinsically lazy. I know many that work very hard. You have to create the right incentives, the right reasons, and people will work to fulfill them.” LatAm stock markets have performed exceptionally well during the past five years, outperforming Asia. “However, the past is no prediction of the future,” says Mobius, who will not be drawn on how much LatAm bolsas could rise in the future. “It’s impossible to predict that. Most of our funds in Latin America are invested in Brazil, Mexico, Chile and Peru and we expect to make the best returns from them.” Mobius recommends that retail investors have at least a five-year time frame and agrees that professional investors should attempt to do the same. “We have certainly increased our weighting in Brazil in recent years but it’s a risk for professional investors to change countries or companies too rapidly. If you find a good company, you should hang on to it.” control and we are not there yet.” Mobius predicts that Brazil’s IPO market will be in the deep freeze until the gap for what issuers want and what investors are prepared to pay narrows. “We have seen IPOs cancelled worldwide. The situation could turn around very quickly, given the speed of today’s financial markets.” He adds that the merger of Brazil’s Bovespa with the country’s futures exchange, BM&F, is a good idea. “It should lead to more efficiency and better market surveillance.” natural resources are so exceptional, only Russia surpasses it.” Mobius is meanwhile a fan of dual listings of stocks in Latin America and London or New York. “I definitely think this is a good idea. There are big markets in Europe and North America. Cities like London are great places in which to do business.” Paradigm Shift Overall, Mobius detects a new paradigm in the world. “I think there is, in the sense that the US is not the centre of the economic world to the extent it once was. I think we have seen a continuous decline in the economic might of that country since the Vietnam War. The process has definitely become more pronounced during the past few years, as emerging markets have taken off,” adds the investor. Looking back, the investor notes incredible changes that have taken place in LatAm during the past two decades. “A sea change in attitudes towards business and about the way in which economies should be run has taken place. Even Venezuela’s Hugo Chávez has not rejected private enterprise. It is not like the 80s – we have forgotten how socialist that decade was.” Chile and Brazil have undergone the greatest positive economic transformations in the region during the past two decades. Chile achieved it over many years while Brazil has managed to do in a much shorter time frame, adds Mobius. “In Colombia, too, there are important economic and business reforms taking place,” he adds. “Peru is moving in the right direction.” Unsurprisingly, Venezuela heads his list of countries in the region that have changed the most in a negative way during the past 20 years, followed by Bolivia, Ecuador and Argentina. “Those last three have not got their act together yet, not managed to fulfill their potential.” Three decades’ ago it was LatAm that was the great hope, not Asia. However, Mobius, one of the most astute and experienced observers of equities in emerging markets in the world today, believes that Latin America’s moment could be about to come. LF “I am very optimistic about the region. There is no other continent in the world quite like this one,” says Mobius Undervalued Brazil According to Mobius, Brazil still probably has the most undervalued stocks in LatAm without presenting too much risk. “It is such a deep market and you have to fully explore every part of it. But you cannot find extremely undervalued stocks without taking some risk. That could mean looking at Argentina and maybe even Venezuela and Ecuador.” Mobius believes in the so-called ‘super-cycle’ for agricultural products, especially soya beans, but in the sense of the rise in demand from India and China for these products. “Prices might not stay at such high levels because there could be new sources of supply,” says the investor. There is not yet a bubble in soft commodity prices, Mobius says. “I would not call it a bubble. One of the factors has been the depreciating US dollar and how that has affected prices. I would define a bubble as prices going completely out of Mobius also likes consolidation among the stock markets within the Caribbean. “The Caribbean markets should combine. They are too small as they are and they need to create more liquidity,” says the portfolio manager. Furthermore, he highlights the importance of Mexico City and Panama to the capital markets of Central America. “It is only a natural thing for companies in Central America to want to list in Mexico. However, you cannot ignore Panama’s stock market. It has a favorable tax regime and could do a tie up with Colombia’s exchange.” He believes that Mexico is too reliant on the US. “Mexico has been making some important reforms but it is so dependent on America for growth. Nafta helped it a great deal. But Brazil has now taken over Mexico as the biggest emerging market in the region. Its 86 LATINFINANCE May 2008

Latin Finance - May 2008

Table of Contents for the Digital Edition of Latin Finance - May 2008