Mobius Buys Brazil, Sees Emerging-Market Outperforming

  • Franklin Templeton recommends investing in developing markets
  • Portfolio in Brazil includes Ambev, financials, Mobius says

Mark Mobius is increasing his bet on Brazil as he predicts a turnaround for emerging markets.

"I’ve told our people that we have to be more weighted on Brazil," Mobius, chairman of the emerging markets group at Franklin Templeton, said during an event in Sao Paulo. Developing markets will start outperforming their counterparts in industrialized countries again as currency depreciation boosts exports, Mobius said.

Brazil, where the real’s tumble and high interest rates are deterring corporate investment, needs to pursue policy changes including tax and labor reforms, he said. The currency has dropped five straight years while the equity benchmark has fallen for three, the longest rout in a decade, as the government struggles to shore up its finances amid political gridlock and efforts to oust President Dilma Rousseff. Interest rates are at the highest level since 2006 to battle double-digit inflation, which persists even as the economy is estimated to be in the midst of its worst contraction in a century.

A pioneer in emerging markets in the 1980s, Mobius built his reputation by consistently delivering outsized returns earlier in his career. In recent years, however, Mobius has struggled to perform after ill-timed investments in commodity and mining companies led to losses. Mobius’s flagship $5 billion Templeton Asian Growth Fund lost 34 percent over the past three years, compared with a 11 percent drop in the benchmark.

Brazilian stocks have fallen 14 percent since Mobius said in October he was looking for opportunities in the nation’s battered equity market. Some of Mobius’s bets in Brazil focus on financial shares, such as lenders Itau Unibanco SA, Banco Bradesco SA and exchange operator BM&FBovespa SA. Other stocks in the Brazilian portfolio are brewer Ambev SA and car rental company Localiza Rent a Car SA, he said at the event. 

The one Brazilian company Mobius won’t hold is state-run Petroleo Brasileiro SA. He said the Templeton Global Emerging Markets Fund sold all its shares in Petrobras, as the company is known, six months ago. The oil producer has seen its market value tumble as it faces plunging crude prices and a sweeping corruption investigation.

Mobius said the corruption probe, known as Carwash, is boosting transparency in the Latin American nation.

"We’ve been coming here since the 1980s. Things are not as bad as they were then, and we’ve got to put that into perspective," he said. "It’s not going to happen overnight, not all the things we’d like to see will happen, but I think it will be enough to see a recovery in the market in the next few years."

(Corrects sixth paragraph of story originally published Feb. 5 to show that the Templeton Global Emerging Markets Fund sold all its shares in Petrobras.)
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