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Mobius on Hong Kong
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June 27, 1997: 6:13 p.m. ET
Templeton manager says HK is hot, but Shanghai is the future
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NEW YORK (CNNfn) -- Hong Kong's stock market is likely to see little downside when the British colony reverts to Chinese rule on July 1. So why is emerging markets guru Mark Mobius looking away?
"We were excited about Hong Kong two years ago and we put a lot of money there," Mobius, president of the Templeton Emerging Markets Fund, told CNNfn Interactive. "Now we're more cautious because we're finding better bargains elsewhere. Quite frankly, we're investing in China."
In a telephone interview from Tokyo, Mobius addressed a variety of concerns the public might have about investment conditions in post-British Hong Kong. His main point: China won't rock the boat. It knows Hong Kong is a capitalist miracle and has experience Beijing needs.
"The new administration will make every effort to keep things on an even keel, business as usual," Mobius said. "The Chinese are very happy to let Hong Kong hum along. As far as we are concerned, there is no reason to believe that because of change in the political administration there would be an impact on the financial market."
Despite anxiety over the transfer of power, Hong Kong's stock market improved at a frantic pace this year. Stock prices are sky high. The Hang Seng index closed at an all-time high of 15,196.79 Friday, the last day under British authority, and the outlook remains strong well after China rolls into town, market strategists say.
For that very reason, Mobius has kept his Hong Kong holdings steady at 11 percent, or about $1.4 billion, of the fund's assets over the last two years, while China assets have grown to 3 percent. He remains heavily invested in banking, real estate and manufacturing and is a vehement advocate of Hong Kong's administrative and financial efficiencies.
But as a value-conscious investor who does not like to buy when prices exceed 15 times earnings, his attention has shifted to thriving Shanghai. He even purchased an entire floor of office space in the Shanghai stock exchange building.
Looking at Templeton Emerging Markets' record it would seem that Mobius lives up to his reputation. The fund averaged a 15.7 percent annualized return over the last five years. Its largest asset concentrations are in Asia (30.85 percent), but it also maintains large stakes in Brazil (13.87 percent) and Mexico (8.40 percent).
Why is he so confident in Hong Kong's stability?
Mobius argues that Hong Kong will still operate the world's leading deepwater port after China takes over. It will continue building a massive international airport. And it will remain the location of one of the hottest stock markets in Asia. In financial terms, little will change.
What could change, however, is how the world views China. With Hong Kong under its authority and Shanghai emerging as a hot market, money is likely to flow fast into the once-isolationist country. Ultimately, that could also bring China closer to the political mainstream, Mobius said.
In addition, the recent decision by the United States to extend Most Favored Nation trading status to China could persuade China to deregulate industry for fair competition and open its markets to services as well as goods.
Mobius is quick to warn that investors should not overstate the importance of Hong Kong in the Chinese mindset. "I think it was Chairman Mao who said that Hong Kong is just a wart on the body of China. Hong Kong from that viewpoint is very insignificant," he said.
"Hong Kong may have foreign exchange reserves almost equal to China and blah, blah, blah. But at the end of the day it is really a small part of what China is."
-- David Rynecki
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