(FORTUNE Magazine) – His name has become synonymous with new global markets. Mark Mobius, head of the emerging-markets team at Templeton Investment Management, holds one of the best -- and longest -- performance records of any manager on that world's stage. Mobius began by running the $100 million closed-end Templeton Emerging Markets fund in 1987; today he runs 24 funds and portfolios, worth over $6 billion. Intrepid investors who bought his original offering have fared well, earning 34% annually over the past five years. Mobius still prowls developing countries like Mexico, Thailand, and Russia looking for good values and does most of his sleeping on planes. He recently dropped by FORTUNE to update us on the state of global investing, one of the hottest games around.

With all this money coming into emerging markets, have you seen expensive lessons taught to less experienced investors? You had a lot of bloody noses earlier this year. People who piled in in 1993 when the markets were going up like crazy got hurt when some of them, like Hong Kong, crashed in the first half of 1994. The rush creates problems because new investors distort valuations. Say you're a portfolio manager sitting in New York with a staff of two. How are you going to get into emerging markets? The easy way is to get the Morgan Stanley or the IFC database and begin to buy the index. That way, your clients will at least not blame you for underperforming the index. But you don't differentiate between stocks. You don't say this is expensive, this is cheap; you just buy whatever is there. The result is, you end up with crazy price movements on the big- capitalization stocks when people are piling in to get exposure to that market. That creates a two-tier market where we can find good opportunities. Instead of buying only big caps that are in the index, we look for cheap, second-tier stocks.

How much disparity do you find in this kind of two-tiered market? The spreads are tremendous, even in Hong Kong, which is a relatively cheap market today. Large-cap stocks, like Swire Pacific, trade for 16 to 15 times earnings. But you can buy good, solid, smaller stocks at seven or eight times earnings -- like watchmaker Stelux Holdings or retailer Joyce Boutique.

Your open-end fund has 43% in cash right now. Why? I tend to hold a lot of cash if I can't find any bargains, and new money increases it. But our cash is declining rapidly because we're finding stocks we like in places like Turkey, Portugal, and Greece.

What's with the Hong Kong market? Why does it stay so cheap? It's political. Every time I give a speech, someone asks about what's going to happen when China takes over in 1997. Nobody knows; people are uncertain. And you know what happens in the face of uncertainty. Stock prices don't do anything, or they decline. My attitude is that anyone who is a global investor -- and most people should be -- has got to have exposure to China because China represents a growing part of the world's economy. And Hong Kong, where I've lived since 1967, is still the best way to buy exposure to China.

What's your biggest position now? Brazil, because of price appreciation. A few months ago, no one wanted to buy Brazil. But we saw assets selling for a fraction of true value, and we just kept on buying and buying. Now it's paying off.

You're heavily weighted in the banking sector. Why? Very often banks are undervalued in developing countries. Banks are often not only banks but also holding companies for a list of industrial enterprises. So once we look closely at these companies, we find the assets are incredibly cheap. Right now we like Ottoman Bank in Turkey, which was the first bank in the Ottoman empire. Paribas has a controlling stake, and it's listed in London and Paris. They have an excellent network in Turkey and holdings in France. It's very undervalued. Akbank and Guaranti Bank are two other Turkish banks that represent good value. we own Bradesco in Brazil, and London-listed Antofagasta Holdings, a Chilean company in copper mining, banking, and other businesses.

What are you telling people to do over the next two or three years? Investors should dollar-cost-average by investing a fixed amount on a regular basis, and hang in there. No one knows if the markets are going up, down, or sideways. If you really have strength and fortitude, you buy when things are terrible. The best time to invest is when there's great uncertainty. That's when the markets are most unstable, and they're bound to be undervalued. I'm not too concerned with what's happening to my net asset value. I'm concerned with how many bargains I have in the portfolio. In fact, I'm very happy when markets go down. I love market crashes, panic. As one of the Rothschilds once said, you must buy when blood is running on the streets -- even when it's your own.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: MORGAN STANLEY CAPTION: ONE OF HIS PICKS: BRAZIL