Mark Mobius bets on commodities, consumer themes in EMs

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS See 12000 on Sensex before 21000: Shankar Sharma Existing monetary policy destabilising US eco: Marc Farber ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 31/05/12 Are Mutual Funds betting on Nifty?

In a free-wheeling interview with CNBC, emerging market guru Mark Mobius, Executive Chairman of Templeton Asset Management, spoke on where he sees market in 2010 and why the sentiment is bullish.

Here is a verbatim transcript of Mark Mobius's exclusive interview as it aired on CNBC-TV18. Also watch the accompanying video.

Q: Would you be putting new money to work in Dubai right now?

A: Yes, in fact we have been and we continue to buy. Of course, we are looking for good prices. So as the markets up and down, we are trying to get the low points but over the long-term we expect to have a very good holding there. Of course, in our frontier funds, we have a lot more but even in our global funds we are putting some money here.

Q: Back in November you predicted that Dubai's attempts to reschedule the debt may result in correction. Obviously we saw that but you said that we would see a correction developing in market equities, you are looking at a 20% drop which is likely is that right?

A: Yes, that is the kind of correction that we would expect in the bullish environment we've had for almost one year now. So, 20% should not be surprising. I was thinking that this Dubai situation would result in a global 20% correction but it hasn't happened yet. But I think we may see that. Of course, on an individual market level it can happen. China has already corrected by that much. So that could certainly happen.

Q: Give me your sense of emerging markets right now, you have been travelling quite a bit what are you seeing out there?

A: What we are seeing is a mid point. We are now at the middle of the valuation range. At a low point in the last ten years it was one time's book. At the high point, it was three times of the book value now it's about two times. So we are more or less in the middle of the valuation range. But as I said with the high money supply that we see, low interest rates cause derivatives alive and well. The bullish trend is definitely with us and we think it will continue into 2010.

Q: Are there areas that you like more than others, given me a sense of real opportunities around the world right now?

A: I just came back from Saudi Arabia and I was in some of the other countries in Northern Africa, around the Mediterranean and here in the Arab region and I am quite excited by some of the things I am seeing. Profitability is very high in some of these companies, growth is high.

Despite the problems that Dubai has credit is still available of course some of the banks are hurting but that is going to be solved in the not too distant future. So this is a very interesting area.

But if you look at the big picture in terms of large amounts of money we have in our large funds, it would be China, Brazil and following that India and Russia.

Q: Are sectors that are leading the growth in your opinion?

A: There are two sectors that we are emphasizing. First is commodities. We believe that commodities will continue to trend upwards because the demand-supply situation is such that we see higher prices.

The second area would be consumers; per capita incomes are going up at a very rapid rate; you can see shopping everywhere you go. The big malls are being built. I was amazed in Jordan for example [when I saw] one of the largest malls I have seen and in Dubai, the largest mall in the world is now in process. So I see lots of opportunity in the consumer area.

Q: So in terms of participating in that growth you want to be buying retailers, things that are very closely tied to the consumer and then on the commodities front perhaps raw materials producers?

A: Exactly in other words, on the commodities front first and foremost oil companies because they are going to continue to have very good cash flow and growth. Mining companies, companies that produce nickel, platinum, gold etc. And then some of the agricultural companies, we have been buying some companies in Ukraine for example that are very big in agriculture because we see shortages in lot of the commodities going forward - particularly at the rate China and India are consuming.

Q: It is an important point but what about valuations? When you look at the MSCI emerging markets index, it's up 70% year to date, do you think the emerging markets still have room to run even after the big run-up that we have seen even with the demand for the commodities that you are talking about?

A: I do see further rises. Of course, you are not going to see percentage change that we've seen so far because we came from a really low base in the end of last year and the beginning of this year. But I see further increases. We must remember that with interest rates where they are if you take the reciprocal of the interest rate you can tolerate a very high PE ratio. So, I think we got to see the PE ratios in relation to where the interest rates are.

Q: So overall you are looking for pretty good 2010?

A: I looking forward to a very good 2010 with of course corrections along the way. It is not going to be in percentage terms as exciting as it's been up to now but I think we are going to have a very good 2010.

Q: What changes the situation? What are the red flags, what in your view reverses that and gets you cautious?

A: A very quick rise in the markets so we get into bubble territory, which we haven't seen yet because we had these breaks along the way such as what happened in Dubai. So a very rapid rise in prices, so that we get too much excitement in the market and sort of bubble mentality that would be a bad sign. Then of course a rapid increase in interest rates and inflation: that would be a bad sign too because that would mean restriction in money flows and general tightening of the credit markets.