Mark Mobius, Partner, Mobius Capital Partner, believes the market is pricing in a possible bank failure and the possibility of higher interest rates which does not look from many perspectives.
In an interview with ET Now, Mobius said: "The market is pricing in a possible bank failure, a possible breakdown in the banking system. Although several banks have come to the rescue so far, there is still a lot of doubt in the market as to whether the governments and particularly the central banks are going to be successful."
"The market is pricing in the possibility of higher interest rates. There is no question that we are now staring at 5-6-7 percent inflation in America, regardless of what measure you are using and that is far away from the target of 2 percent, which means that the Fed must raise interest rates. These are the two things that the market is pricing in. It does not look very good from many perspectives in that sense."
Talking to ET Now, Mobius said before investing in a country, he looks at two major macro factors. First is the foreign exchange reserves, regulations on foreign exchange, etc. to understand whether he will be able to get his money out and secondly, if the government can take over his company which happened in Venezuela when Chavez came in and said he was going to nationalise many of the companies.
After looking at these two macro factors, he looks at individual stocks.
"We look at individual stocks and every stock is going to be different. If you are looking at a stock in the hospital or healthcare area, you have to see if the government is going to impose any restrictions on how much these companies can charge. The same thing with banks. If the banks are going to be restricted by the government in what they can charge and how they run their business, then it is a big problem," said Mobius.
On being asked whether one should invest in value or growth stocks, Mobius said it is not a matter of value versus growth but a matter of the ability of companies to determine pricing.
"It is a matter of the ability of companies to determine pricing. In other words, those who are able to fix prices higher than inflation. So, we have to look at price makers rather than price takers in India or anywhere in the world. At the end of the day, it is not a matter of what the market is doing in general but what these companies are doing specifically," said Mobius.
He believes there are many companies in India that are price makers. "They are able to fix prices ahead of inflation and continue to do that going forward. Not many of them but they are enough to provide a great opportunity," he told ET Now.
Mobius is of the view that one should invest in physical gold for emergencies but it should not be more than 5 or 10 percent in one's portfolio.
"I think it is very good to have some gold in physical form in case of real big emergencies. I do not see gold as a great investment because it does not produce earnings, it is static and it is not really the kind of thing you would want to include more than 5 percent or 10 percent of in your portfolio. But it is important to have it in the case of a real breakdown," said Mobius.
"We have come very close recently to a complete breakdown of markets in every direction. And, of course, when there is war and other strife, it is always good to have some gold, particularly in physical form, hopefully in coins, so that you can carry it and use it as money," said Mobius.
On ESG investing, Mobius said he believes in ESG plus C, C meaning the culture of the company.
"We look at the ESG plus C components because each company is different, you cannot apply the sort of blanket measure," said Mobius.
"The reason why we believe in ESG plus C is that it reduces risk. If you have problems with the environment of your company, if you have problems with the society around you, if you have problems with corporate governance, and if you have problems with your own staff, that is a big risk that we do not want to have," Mobius said.
Disclaimer: This article is based on an ET Now interview. The views and recommendations given in this article are those of the expert. These do not represent the views of MintGenie.
