Dr. Mark Mobius, Guru, On Thailand & Oil

Who doesn’t know Dr. Mark Mobius, one of the “Top 100 Most Powerful & Influential People” according to Asiamoney. A guru of the world of finance and a master of style and la joie de vivre. Immaculately dressed, probably freshly delivered from his private jet, the Doctor recently honored Bangkok with his insights on Thai Assets & Stocks.

Not that Mobius gave away tightly kept secrets. But he nevertheless gave insights into his grand thinking and vast expertise. Not to trust this man’s advice means rejecting forty years of solid experience and research. Mobius and his Franklin Templeton team are responsible for more than US$45 billion worth of investments in emerging markets around the world.

The event was moderated by BusinessWeek‘s Andrew Batt of Bangkok Bugle who mentioned that it’s hard not to be impressed with a legend enjoying cult status who travels the world in his own jet and ranks amongst the crème de la crème of human society. Well, true style doesn’t show off, and that’s exactly how Mobius came across.

But you who may have lost substantial money in the Thai financial markets, if Mobius tells you “that market is fine”, will you reconsider and follow the gentleman? And foreign investors, especially Americans and Japanese, have a big stake in Thailand’s jittery economy. Are they just holding out or truly committed?

It’s also a fact that foreign investors have been carrying the SET over the past months. Morgan Stanleyused to rate Thailand much higher than now. How to revive that old Thailand? Taking China’s supply chain problems, is this a chance for global investors to wisely diversify and remember Thailand?

And Mobius’ take on the oil price? Ah, most interesting: He doesn’t talk about speculation. But about investing demand. A bubble mainly caused by institutions? Let’s listen in. Starting with: What factors does Dr. Mark Mobius take into account when investing in Thailand:

The first consideration, says the Doctor, is about public equity or private equity investments – and the liquidity. Public equities are easy to buy and sell. The second consideration of course is value. If the company is representing good value. If it is inexpensive. If we’re buying future earnings at a low price. After we determine that, we have to look at the ownership and management. To see how the people who control the company treat us. We always explore and visit a company before we invest. With a few exceptions we do a video or conference call, but only in very few cases we would invest without properly knowing the company.

How, Dr. Mobius, you see Thailand right now as a investor?

We have been here for a long long time. The very interesting picture about Thailand is the political one. From the outside for someone with not too much experience it may appear as quite chaotic and unstable. However, after having seen quite some changes in governments, we consider prices going down as an opportunity. Normally for us that’s a buying opportunity for relatively inexpensive stocks. On the other hand the country is rich. Thailand has resources and a basic education level with a good discipline. All these factors make Thailand quite attractive.

Since the coup in 2006, says Mobius, we’re actually investing more. Our experience goes back twenty years. We understand this kind of environment.

What countries is Thailand competing against?

Mobius: Thailand is competing with over forty countries around the world. There’s lots of competition. In Asia you have Malaysia, Singapore, the Philippines, Indonesia and most important China which is offering a lot of value and money. In the Golf region we have some very fast growing companies. Africa is more and more interesting. Then Brazil and Mexico – especially Brazil is blessed with vast resources. Back near Europe we have Russia.

Why you go for Thailand when there are such choices?

The key to attract more investment is privatization. The privatization of large stakes of state companies is very interesting for investors. On the one hand the country does not have to lose control, but by privatization they can move into more competitive management and be more successful on the global stage. Take Thai Airways, they’re competing on the global stage. The model that is adopted by the Chinese is very good.

We’re interested in Thailand because Thailand has a relatively free economic system. Consumers in Thailand consume a wide array of services, be it banking or other services. Thailand is also an important exporter of food items and an increasingly important manufacturer. In real terms Thailand is growing by five to six percent. This is very very good growth. Provided that you have a good company that is able to take advantage of the sector it’s invested in, Thailand makes a lot of sense.

Let’s talk oil prices. Populist interventionism is a reality here in Thailand. The government asked PTT to lower its margin of gasoline prices. Your answer?

As a investor we’d like to behave PTT according to market forces. But we are also concerned about the environment. Many companies invest in greener technologies. We rather support to increase prices at the pump, for that PTT receives what it needs. Market forces should play. Therefore more efforts are made to develop alternative energies.

The subprime crisis went far beyond the U.S. You’re heavily invested in Thai banks. You’re afraid?

There is no direct effect, says Mobius. The indirect impact is also not as big as people might imagine. The reason is that in the past ten years the Thai economy has become much more diversified. Also the industries have become much more diversified. Any slowdown in the U.S. does not have such an impact here anymore. Growth for the developed countries is gonna come down at about one percent. But emerging nations including Thailand are still growing at around seven percent.

Does the subprime crisis change your investment focus and priorities in Thailand?

Almost half of our investments are in banks and the energy sector. But we’re increasingly interested in the consumer sectors, retailing and specialized consumer goods. The other area of interest is the shipping industry. There are a number of companies here doing quite well – and of course the crews on these ships are Thai, and those crews are of course reliable. Some time away, after the recovery in the U.S., exporting sectors such as in electronics are gonna be interesting again. There will be opportunities in that sector.

Sectors you don’t want to be in?

Actually we don’t have any sector that we don’t want to be in, because there are so many good companies in every sector. It is so company-specific. Some of the car manufacturers have gone bankrupt. Others are thriving.

How to distinguish?

Someone once told me, says Mobius, if an expert tells you how you should build a house and an architect says the same, you should follow the advice. If three investment experts recommend you to do the same thing, you should do the opposite.

Your forecast for the oil price?

First of all, you must remember, the oil price is determined by supply, demand and the strength of the U.S. dollar. The prices of oil are in U.S. dollars and if you are sitting in Thailand with a currency that is growing stronger you’re not that affected. Regarding supply be assured that at this stage the supply of oil is not increasing. The reason for that are the cost and time involved in finding new oil fields. Furthermore the taxes on new oil are very high. See Russia, they tax new oil exploration and supply very high. They’re overthinking that because they see it’s very dangerous.

Another problem is that unfortunately many governments of the world subsidize oil. In my view that’s a big mistake. A lot of wastage happens. People drive too big cars – or I often go to restaurants in different parts of the world. Particularly in Hong Kong and Singapore I have to ask for a hat. It’s so cold. That air conditioning is a complete waste of fuel.

In the long-term I see the trend towards increasing the price of oil. I would say that oil companies will do very well. If they’re allowed that they can charge what they should charge.

It has to be added here though, as co-panelist Kenneth White of Finansa remarked, that at one point there will be a tipping point. There will be less demand for oil and more investment in alternative energy sources. There are gonna be a lot of changes in our lives, says White, how we do things over the next ten to twenty years.

Adds Mobius: Of course higher oil prices have an economic impact. Central banks around the world will be forced to increase interest rates. Economic activities in return will be damped. In many areas we see a slowdown already. But when governments are allowing market forces to play, we’ll see a lower demand for oil over time. So prices will go down.

And now, to me at least, his most important statement:

A large part of the demand for oil, says Mobius, is investing demand. Others call it speculative demand. Pension funds as such are heavily invested in oil. As soon as they see that prices go down they may try to get out of oil and other commodities such as food products.

The global financial markets have seen better times. Is the worst over? Or we may still see a crash in the U.S.?

Mobius: The Dow Jones will not crash. As you’ve seen recently it’s very resilient. Why is that? The subprime crises is already over. The market has already discounted the worst. The market is not concerned about what happens now, but what happens in a year. And all these mortgages will be bought very cheaply. Big funds are right now buying those mortgages. Because they’re very cheap.

But it’s not the U.S. deciding what will happen. It’s you. When I say you, I mean the central banks of Thailand, Brazil, South Korea, China. They hold trillions of U.S. dollars and they’re not gonna buy U.S. treasuries anymore. The U.S. is heavily in debt to the rest of the world. They must demonstrate to the world that they can put their domestic house back in order.

At the end of the day you must remember the American economy is very agile and quick to react. The American economy is now exporting very aggressively because the dollar is very cheap. Some time ago we saw too many empty containers in the U.S. – now there’s a shortage.

To conclude a shorter Reuters take on Mobius’ bet on cheap Thai stocks.