Veteran emerging markets manager Mark Mobius says he has been looking at Chinese stocks lately, in part because the attempted mutiny in Russia could push China’s Xi Jinping to dial back some of his more aggressive stance globally.
In a Tuesday interview with Barron’s, Mobius said that he favors midsize stocks in Taiwan, Korea and India to China. But the head of Mobius Capital Partners is taking a closer look at opportunities in mainland China and says the attempt by a group of mercenaries this weekend to head to Moscow before calling off a potential revolt raised questions not only about Russian President Vladimir Putin’s grip on power but also that of China’s Xi Jinping, who has maintained a close relationship with Putin.
Barron’s spoke with Mobius shortly after he landed in Taiwan to talk about how the developments in Russia impacts China, why he is beginning to look again at mainland Chinese stocks and how to hedge against possible conflict around Taiwan. An edited version of our conversation follows.
Barron’s: It has been an eventful couple of days in Russia. How significant is this in the context of the changing global world order?
Mobius: It’s very significant because if the situation in Russia plays out so that Putin loses and is thrown out, that is going to be a very significant move because it provides an example to the leadership in China. I’m sure they are looking very carefully at what is happening in Russia and it must be pretty frightening.
That’s the reason Ukraine is so significant. It isn’t about Ukraine alone, Europe alone but about China and other parts of the world and looking at what are the best model for their economies.
Taiwan is your largest country exposure. How do you hedge the geopolitical risk?
One of the reasons we bought fabless semiconductor companies—like eMemory Technology (3529. Taiwan) and Zilltek Technology (6679. Taiwan) is because they don’t have factories [in Taiwan]. They have people who can be flown out at a moment’s notice and many of these companies already have bases in Silicon Valley and elsewhere in the world. We are hedging our bets in the hopes of overcoming any possible political problems.
But frankly, the chance of a military confrontation is very remote at this stage and I don’t see that happening anytime in the future because the Chinese leadership realizes they need the U.S. They need the money, the trade and any move in the Taiwan Straits would be an economic disaster.
China’s crackdowns on big internet companies rattled investors. What’s the view now?
The outlook was bleak and [there were worries] entrepreneurship in China was going to die. But now that’s changing rapidly. I think [officials] realized they can’t continue on this path because they aren’t going to get the money they need. They need dollars and need to attract American investors so their whole approach with a parade of prominent Americans visiting China you can see the Chinese really want to change their attitude. Now with what’s happening in Russia that became more urgent for the Chinese because they realize they can’t put too much faith in Russia. Therefore, our view is we have to look more closely at China.
Is this a transitory pivot or a more permanent shift by China?
That’s the big question mark! My guess is it isn’t permanent, but it could last for a significant amount of time—enough for us to invest and make good investments. But a lot of institutional investors are very reluctant to go back into China because they were burned. It’s going to be interesting how this new effort to open the doors to Americans will develop.
What are you interested in?
Companies that don’t have the risk of any government intervention. For example, we were looking at a medical supplies company, but recently the government came in to regulate pricing, which becomes a problem for margins.
You have to be on the right side of policy but in an area where the government won’t be interested in imposing controls one direction or another—and avoid companies that stand out [in a way] that could result in government intervention.
Write to Reshma Kapadia at [email protected]
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