Executive Chairman of the Templeton Emerging Markets Group Mark
Mobius continues his cheer-leading for China growth.
[caption id="attachment_70236" align="alignright" width="300"
caption="Customs House in Shanghai, China"]
Despite predictions that China's world-leading growth is over,
and even some extremists looking out for economic contraction,
Mobius believes that even disappointing China growth will continue
to drive the world's economic expansion.
China growth has indeed slowed, for six consecutive quarters to
date. Exports have also declined but according to Mobius they are
"not disappearing". He notes they are still impressively large and
expects China growth to continue. Mobius would pessimistically
place China's GDP for the current year at 5%, still significantly
better than the U.S.
As previously noted at Emerging Money, Mobius dispells
the question of China having a hard or soft landing by stating that
China is not landing at all
. His true expectation for China growth is more in the neighborhood
of 7%, not 5%.
Mobius continues to be a buyer of Chinese stocks. While the
Chinese stock market is down for the year, and as investors watch
and wait for the presupposed 'landing', much of the previous dollar
flows into Chinese stocks, mutual funds, and ETFs is sidelined,
waiting to return. Mobius is buying consumer oriented stocks. He
believes a boom thanks to Chinese consumers is pending as wages in
China increase by 20% per year and China's government tries to
increase domestic consumption as a percentage of GDP.
The iShares FTSE/Xinhua China 25 Index ETF (
) is down approximately 4% this year, in line with the Shanghai
stock market. This is in stark contrast with the SPDR S&P 500
Index ETF (
) which is up about 12%. But that's where the value may be,
assuming Mobius is correct.
Be wary though. Despite the disparity in returns there is still
significant positive correlation between the two ETFs. As Mobius'
outlook for China growth is long term, investors in FXI may be in
for more pain in the short term if the U.S. stock market declines
between now and the end of 2012. Some predictions are for declines
of as much as 25%, which could drag FXI and other China-oriented
ETFs much lower.
Mobius mentioned consumer stocks specifically. Long run I think
these ETFs are worth investing in, but short run they can be
problematic, with many having very low trading volume. They may
also overlap an existing ETF's allocation -- many ETFs are heavily
invested in consumer stocks within their portfolios. Considering
that in the U.S. 70% of GDP is thanks to consumer spending, it is
likely that fast growing emerging markets will exhibit similar
This is good news for emerging market investors. But if you own
a consumer-specific emerging market ETF and a broad-based emerging
market ETF (that happens to be heavily weighted toward consumer
companies) you may end up with more than you really wanted. A
continued or worsening global slowdown could really hurt your
portfolio's performance. Before buying a sector-specific fund, look
under the hood of what you already own and
avoid unintentional over-concentration in one sector.