Interview with Dr. Mark Mobius, Ph.D., Executive Chairman

What is your outlook for the Chinese economy over the next 12 to 24 months?

We think that Chinese economic growth will continue at a high level but with some moderation since the government is determined to (1) contain any possible bubble scenario and (2) more equally distribute the wealth throughout the country.

What is the main catalyst for the Chinese stock market?

Growing consumption is the key. China's domestic market has grown sharply in the past decade and will continue to do so in the foreseeable future. As per capita income moves up, disposable income increases and this contributes to rising consumer spending.

China seems to be preparing for a RMB strengthening as shown by them stress testing larger Chinese companies. What are your thoughts on currency movements in the medium to long term, and how are you preparing your investment strategies to adapt?

On a price parity basis, the Chinese currency is not substantially undervalued against the US dollar. The Chinese government is acutely aware of what happened to the Japanese economy when they revalued their currency against the US dollar. China, therefore, is not expected to act quickly on currency adjustments. In terms of our investment strategy on currency movements, we look at all currencies on the basis of price parity (comparisons of different inflation rates) and, of course, any controls and influences imposed by the Central Bank of each country. We then decide on whether a currency is over or undervalued and then assess the impact of such currency characteristics on the business of each company.

What is your current assessment on emerging markets? And which markets do you currently favour?

Emerging markets continue to be in a secular bull phase so the trend is towards higher prices of company shares with, of course, corrections along the way. While we do not particularly favor or dislike any one market, our largest exposures currently include China, Thailand, India, Brazil, Russia, Turkey and South Africa.

Is the growth we've seen in emerging markets sustainable?

Yes, the economic growth in those countries is sustainable in view of their strong fundamentals. In addition to the strong reported macroeconomic data, financial and fiscal indictors also remain positive. The stock market, however, will naturally experience corrections, while over the longer term reflecting the economic growth in those countries.

What risks or barriers remain in emerging equity markets?

A dramatic decline in money supply will draw money away from markets. More importantly, derivatives remain a significant risk in view of the number of companies engaged in derivative activities which could result in significant losses.

Given recent softness seen in global markets arising from concerns over the SEC's suit against Goldman Sachs, the European ash cloud and Greece, are you expecting further corrections in emerging markets? What tactical investment strategy are you adopting at this time?

There will always be corrections, and these will not be limited to emerging markets but to global markets. Goldman Sachs, ash clouds, Greece and many other events will hit the news and be discussed. The markets will always overcome these setbacks and tactics designed to predict such events usually will not work. More importantly tactics designed to react to such events are normally too late and could result in taking actions which hurt performance. The best strategy is to take a long term view and buy companies that are best able to overcome such crises.

Do you think it is still suitable to invest in emerging markets?

I've always said that the best time to invest is when you have the cash. And today would be no different. However, it is important not to jump headfirst into equity markets, or for that matter, into any market. Also, you should separate the money you need for your daily life from the money you are willing to put away for a few years (preferable five years). If you do invest in equities, it is important that you invest your money not just in your own country but in a diversified global portfolio. In this way, the volatility of your holdings is likely to be less and you will gain exposure to markets all over the world. Dollar cost averaging is also important: put aside a fixed amount to invest every month and invest that amount regardless of the market level. Invest in a mutual fund operated by a trusted institution with a good solid reputation and a track record. After a few years of such investing you could potentially begin to establish a base of capital that should stand you in good stead.

Please click here for more information on the FTIF - Templeton China Fund.