“It is not time to push the panic button”, says Mobius

Many economists consider China the world’s locomotive, so its economy’s slowdown affects most of the other countries, particularly their large trading partners such as Brazil, Russia, India and South Africa, which constitute the so-called BRICS group. These nations are commodities suppliers to China, trading in particular oil, coal and iron ore. As a result, a slower Chinese demand directly impacts these countries. But not everyone seems alarmed about China’s growth deceleration. Mark Mobius, who directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios, says it is not time to push the panic button.

In his blog, the executive says slowing growth is a natural part of the evolution of an emerging economy, particularly one as large as China, the second-largest economy in the world. According to Mobius, many of the world’s economies are facing slower growth trends this year, and China is also undergoing structural changes that often come with the side-effect of a few growing pains. “It (China) has been moving toward a more consumption-oriented economic model and loosening controls on the economy, which require some adjustments”, says.
In Mobius’ opinion, many economists believe China is the engine for the world economy, but the country is not the only one which is the world economy’s locomotive. “The heightened concern about the country’s recent deceleration isn’t surprising, but we must remember that there are many fast-growing emerging and frontier markets that have been powering ahead and contributing to world growth. The world economy is not a single-engine affair”, says the executive.
Mobius emphasizes the International Monetary Fund (IMF) projections, which predicts that Africa is expected to be the fastest-growing continent on average over the next five years. “If India is able to engage in meaningful reform, I can see the potential for growth rates there that could echo what China experienced 5-10 years ago”, says the executive chairman of Templeton Emerging Markets Group.
According to IMF growth forecasts for BRICS in 2012, China is struggling to grow 8% while India is more focused on reducing inflation. In the case of Brazil, the GDP might grow just 2.5% in this year. Over the same period, South Africa’s 2012 growth forecast was cut from 3.8% to 2.6%.
“I don’t feel it’s time to push the panic button”, says Mobius. “Yes, China’s growth is decelerating from the double-digits of recent years; various forecasters are predicting a possible GDP growth range of 7–8% this year. However, I think it’s important to emphasize that would still represent an impressive pace.”
The Chinese government has many tools to stimulate its economy and the country also has the benefit of holding the highest amount of foreign reserves in the world (over $3 trillion). “Recently, we learned a Chinese company struck a pending deal that could help shore up its oil and natural gas supplies via a large Canadian energy acquisition. China has been investing heavily overseas, particularly in natural resources, to help meet its growing demand”, says Mobius. At the end of July, China's CNOOC announced an agreement to buy Canadian energy giant Nexen for $15.1 billion.
According to Mobius, as a long-term investor, he tends to look at the big-picture beyond short-term statistics. “China’s government operates with a series of five-year plans to transform the economy, and I don’t know exactly how all aspects of the latest plan through 2015 (…) will be implemented, and whether it will be successful overall”, says the executive.
To Mobius, investors might be alert to market bargains. “(..) price-earnings ratios are generally looking attractive to us in China right now. Consumers and commodities are particular areas of interest, because we believe a transition to a more consumption-based economy should help support these sectors”, says the executive chairman of Templeton Emerging Markets Group. “I have every reason to believe this transition should be successful, and still believe China could continue powering ahead.”


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