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Markets  |  February 18, 2013 14:43:58

Mark Mobius: Year of "dragon" was disappointing

Last year dragon fully got its name, how the financial markets have had to deal with one challenge after another, whether it is the European debt crisis, with unemployment problems in the U.S. and worries about China's economic growth, respectively. its decline. At the beginning of the new year, it seems that the European debt crisis is not critical to the global economy problem, as well as China's economy is still pretty brisk pace. However, as I write these lines, I realize that there is still not resolved the U.S. debt problems.From my perspective, the uncertainty gripping the U.S. economy just the tip of the iceberg, which this year could threaten the global economy. However, despite all the alarm messages to the world markets generally fared in 2012, achieving growth rates.

Chain reaction

In this interconnected world, all events that will take place in key economies of the U.S., euro area and Japan, a major impact on the global economy. The world economy is not a constant, ever-evolving. For example, emerging markets, they still reduce its dependence on the U.S. and Europe.They are also the economies of some representatives of the emerging markets, which this year could drag global economic growth. In developed countries, we would be very likely to see continued loose monetary policy, which increases the amount of free dollars destined for the stock markets, stock markets, including emerging and frontier markets.

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Emerging markets are generally characterized by three properties that speak in their favor: a generally higher economic growth, greater amounts of foreign exchange reserves and low debt. Many emerging economies is also apparently on top of the consumer boom and productivity growth, which is a good foundation for future growth potential.

As an equity investor investing for long-term horizons things I'm in the further development of the world economy optimistic, despite the problems with debt, which is now plaguing the U.S. and Europe. Apart from this, because we have a growing middle class in many developing countries, which gives the potential growth of their consumption expenditure. In this respect, it seems to us to be particularly interesting potential of Asian emerging countries. According to the latest estimates of the International Monetary Fund in 2012 amounted to developed markets as a whole, economic growth 1.3%, with the estimates for this year talking about 1.5%. In contrast, the Asian emerging economies in 2012 should grow by 6.1% this year would have to grow even 6.8%.

Frontier Markets

Especially great optimist I am, what is the potential of potential frontiers markets concerned. Investing in them can be exciting, but investors should still be selective and be patient. The Templeton taking into account the long-term development in the past, while we forecast growth in inbound five years. Economic growth in many frontier markets in the year 2012 significantly exceeded the growth rates of developed countries, while this trend will be for me to continue.Even the International Monetary Fund estimates that over the next five years, 10 of the 20 fastest growing economies come from sub-Saharan Africa, the other two from North Africa. None of these economies will not be in the Western hemisphere.

I see the future developments in the capital markets, frontier markets form. Some of them I think will change from small to large and illiquid and liquid.

How will the frontier markets continue to evolve, there is the assumption of further increasing their investments in infrastructure, which reveals the investment opportunities in sectors such as construction, transportation, finance and telecommunications. Many frontier markets are important producers of commodities such as oil, gas and precious metals, which makes them a good starting position for participování the anticipated growth in global demand for these resources.Participation in this growth will be in these countries mean momentum for further economic growth, increasing purchasing power of population and ability increased investment in future growth.

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Many frontier markets benefited from massive investment from large emerging countries. such as China, India, Russia and Brazil. Engines of economic growth in frontier markets are not only commodities, such as in Botswana, which is the world's largest exporter diamatů, it was a newly opened call and service centers. Or maybe Kazakhstan, a country rich in oil and other natural resources, in the case of this country dragged economic growth and investment in local infrastructure.

Low interest rates and inflation ...

Given the fragile state of the economies of developed countries is very likely that the central bank will continue to pump money into the system. From an investment point of view, it is likely that investors seeking attractive growth in an environment of low interest rates will nurture growth in equity markets, especially those from developing countries, which increased inflow of money could benefit at least in the short term. This trend is not any hot news in the first 11 months of 2012 flowed into emerging markets investment of around 35 billion USD.This is logical, with the way interest rates remain at low levels, investors are financial markets increasingly interesting.

The other side of the coin, however, potential for higher inflation. In developing countries, a large proportion of the population falls into the low-income group, which falls on the growth of basic goods such as food or gasoline with greater intensity. Partial prevention of the effects of increased inflation may be increased productivity.In this regard, it will be interesting to observe developments in the countries exhibiting somewhat cumbersome reactions of their governments. These countries would have to be forced to limit the role of government. Our work is the fact that we found a thorough exploration of that exhibit, in the face of these challenges, the ability to not only survive, but also thrive.

Risks and accelerators changes

One of the biggest risks I see this year is the "ability" politicians have a developed country with any reaction on the fiscal well spaced. If politicians will not be able to co-operation, there is a risk that the U.S. and Europe fall into recession and deleted the growth that we have witnessed in global markets last year. In addition, then I believe it will be this year in a number of developing countries on the agenda of balanced growth, inflation and competitiveness.

With regard to the events of last year, one can say that there will always be unforeseen factors and conditions that may trigger major changes in the global environment. We can not determine exactly when we suffer another market correction, and how much will this correction. However, we expect that this year will witness the volatility in the markets. Every crisis, political change or even a coup but also means opportunity. That is why we continue to invest for the long term in companies that we believe are undervalued, which have strong fundamentals and which also exhibit the ability to face future difficulties and changing environment.

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© Copyright 2012 Franklin Templeton Investments. All rights reserved.
The article was translated and reproduced with kind permission of Franklin Templeton Investments' Mark Mobius blog from

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