MARK MOBIUS, executive chairman of Templeton Emerging Markets Group on Emerging Markets
Privatisation of state-owned enterprises has been a key catalyst in unlocking the market potential of emerging economies.
I believe listing on stock exchanges or allowing market forces to work can ensure greater efficiency in effective resources deployment.
In recent years, we have seen a rise in initial public offerings in emerging markets as EM companies begin to recognise the advantages of going to the market to raise capital in order to expand and grow. At the end of 2009, emerging markets IPOs represented about 70% of all global IPOs, as compared to about 20% in 2000. During 2009, the amount of IPO money raised in emerging markets rose steadily. Total funds raised were about $87bn.
The flood of emerging markets IPOs was also largely fuelled by excess liquidity in the global markets. There has been a dramatic increase in the money supply in the U.S., China and other countries. As a result of the current low interest rate environment and less attractive growth prospects in developed countries, investors look to emerging markets to seek better yields for their cash.
Although the large amount of IPOs in the market is a reflection of emerging markets’ strength, this huge pipeline may also put downward pressure on the markets as money could be diverted to new issuances, away from existing shares in the market.
I have a note of caution for investors chasing IPOs and short-term gains. Not all listings are created equal. There is generally a lot of promotion surrounding all new listings. Therefore, it is important to conduct your due diligence and evaluate the stock based on its fundamentals with a long-term investment perspective.
I learned one important lesson before entering the fund management industry when I made some personal investments. I bought into Mosbert Holdings without due diligence and at the advice of a friend. It turned out to be one of the largest cases of fraud in Hong Kong and I lost my investment.
Thus, when it comes to the IPO markets, the key is research. Do your homework on the individual IPO with regards to its merit and fundamentals before making a decision. Some IPOs issue shares at attractive valuations and this is where good firms can be purchased. And then there are instances where some may be trading at excessive valuations. On the positive side, IPO firms can also offer new and exciting investment opportunities and broaden the existing investment universe. Market liquidity also improves as a result.
Mark Mobius is executive chairman of Templeton Emerging Markets Group and manager of Templeton Emerging Markets Investment Trust
