Lula’s victory would bring greater confidence to foreign investors, says Mark Mobius

The American manager specializing in emerging markets Mark Mobius says that the war in Ukraine did not make him promote changes in the portfolios of the funds of the manager Mobius Capital Partners.

According to him, the focus was already and remains focused especially on Asian markets such as India, China, Taiwan and South Korea, which even tend to benefit from the conflicts between Russia and Ukraine and the negative economic impact on the European continent.

In the case of Brazil, Mobius believes that the local market has good growth prospects even in a scenario of high interest rates.

He also believes that foreign investors should be more receptive to a victory by former president Luiz Inácio Lula da Silva over current president Jair Bolsonaro (PL) in the presidential elections at the end of the year.

“Probably Lula would bring greater confidence to foreign investors,” says Mobius, in an interview with Sheet, from Singapore.

What impact does the war in Ukraine have on emerging markets? There are different impacts depending on which countries we are talking about.

But in general, countries in Asia, China tend to benefit, because of this event and the negative impact on Europe’s economy. Furthermore, regions such as Brazil should not be significantly negatively affected by the war.

Did you make changes to your wallet because of the event? We haven’t made any changes to the portfolio recently, not least because the positions we have are not directly exposed to the impacts of the war, especially in Asia, which represents around 70% of the funds’ portfolio.

Our biggest investments today are in India, Taiwan, Korea, Vietnam, Brazil, South Africa. We assess that the positions do not need major changes. Furthermore, we had no positions in Russia or Ukraine or in any country that was part of the Soviet bloc.

The funds’ main positions are in steel tube producer Apollo Tubes, in India, EC HealthCare, in the healthcare sector in China, and in Totvs, in the software sector in Brazil.

Does the crisis in Ukraine increase interest in other emerging countries such as Brazil? There is a certain perception among investors that it is a good idea to diversify to other emerging markets, such as Asia or Brazil. I believe that the conflicts in Ukraine helped to reinforce this idea in the market.

However, the increase in global uncertainty has hit all markets, which means most investors are very cautious at this point, including us at Mobius Capital Partners.

What is your view of Brazil in 2022? I see the Brazilian market with good prospects at the moment. Investments in the country have performed better than their peers in recent months, and perhaps the reason for this is due to investors’ expectations that Lula will win the elections. It is necessary to remember that, at the time when Lula was president, the markets used to have a very positive performance.

From the point of view of foreign investors, which result of the Brazilian elections should be better received? At this point, I would say that Lula’s victory, because he would probably bring greater confidence to foreign investors and because he has a very ambitious investment program, which would probably bring a boost to Brazilian assets in general. So probably Lula’s victory would be a more positive scenario for the markets in Brazil.

Do you plan to change your exposure to the Brazilian market? We do not intend to increase or reduce the exposure we have in Brazil, which we consider to be adequate. Brazil currently represents around 10% of our portfolio, with a small increase recently due to the positive performance of shares in the region.

What are the preferred airlines in the country? Our main positions in the Brazilian market today are in the retail and software sectors. These are the segments that most attract us in Brazil today.

Could the increase in the Selic rate represent negative pressure for investments in the country? In the short term, rising interest rates can bring some volatility to equities, but if you look at longer term windows, the correlation between interest rate and equities is relatively low. Therefore, I do not believe that this increase in the Selic rate will be a big problem for stocks in Brazil.

Where are the best opportunities among emerging ones? I would say that you have to look mainly at Asia, with India probably at the top of the list, where the growth prospects seem very promising to us, with an expected GDP growth (Gross Domestic Product) around 9% in 2022.

What is your view on the Chinese government’s recent measures of greater intervention over companies with shares listed on the stock exchanges? The Chinese government is embarking on a program to ensure that the benefits of a richer nation are experienced by all Chinese, not just the richest.

They are committed to ensuring a more balanced competitive environment, in which the lowest-income part of the population has access not only to a good education and higher standards of living, but also to a healthier environment.

The challenge is very big, given that the majority, between 70% and 80% of electricity production in China, comes from coal plants. The pollution caused by these plants represents a major challenge. There is an ongoing effort to reduce this energy production.

In the long term, the implications are that China will import less fossil fuels such as coal and oil, turning to more ecologically friendly energy sources such as wind, solar and nuclear, among others. But this is a long-term process and will not happen quickly.

Could interest rate hikes in the United States have negative impacts on emerging markets? The interest rate hike by the Federal Reserve [banco central dos EUA] will have negative impacts mainly on bonds in the fixed income market. But for stocks, this movement should not be that significant.

x-ray | Mark Mobius, 85

Founding partner of global asset manager Mobius Capital Partners. He spent more than 30 years, until May 2018, at the Franklin Templeton Investments group, heading the division dedicated to emerging markets.