Mark Mobius, executive chairman at Templeton Asset Management Ltd., says that despite the strong rebound in emerging markets in 2009, there is still value to be had in the stocks of key countries and sectors.
To Mobius, who is the doyen of emerging market investment, China represents one of the most attractively priced equity markets at present. "China's stocks are trading at a substantial discount to the rest of the Asian markets," he says.
These stocks have had a stellar run in 2009 from their trough in the final quarter of 2008, and are not now as cheap as they were then, says Mobius. "But in perspective, this substantial increase is off a very low base."
Turning to Latin America, Mobius particularly favours Brazil, which like China has seen a surge in its stock market, "but still offers value." He is more cautious on India and is only adding selectively in that market. While there are many excellent companies based in this country, he says, the stocks have tended to be more expensive than those of China and Brazil. "From time to time, we can find opportunities in India," he adds.
Based in Singapore, Mobius heads a team of emerging-market analysts located in offices around the globe. This team manages more than US$30 billion at Templeton, which is part of the giant Franklin Templeton Investments. This global group's responsibilities includeTempleton Emerging Markets 
, which is available in Canada.
While he is a traditional value manager, Mobius uses his comprehensive macroeconomic and political knowledge of the developing world to shape his portfolios. His current emphasis is on Asia and on commodities, both heavily weighted in Templeton Emerging Markets.
Of the valuation of his universe, Mobius says that the benchmark MSCI Emerging Markets Index is trading at around two times the book value of its constituent companies. "This valuation is in the middle of the historic range of three times book at the high end and one times book value at the low end."
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Though P/E (price to earnings) multiples on stocks in many emerging economies appear high, Mobius says this must be seen in the context of historically low global interest rates. "The lower the interest rates, the higher the investor tolerance for high P/E multiples," says Mobius, who expects global interest rates to remain low.
Mobius notes that GDP growth rates of most emerging economies improved substantially in 2009, and should continue to accelerate in 2010. For example, China, the second largest economy in the world after the United States, has seen its GDP growth rate rebound to 8% year over year from 6% in the first quarter of 2009.
South Korea's economy has grown in 2009 at its fastest pace in more than five years, says Mobius. "The country is benefitting from trade with China," he says. Meanwhile, he adds, India is delivering GDP growth of 7% this year. "This is a significant growth rate for a country of this size." As for Latin America, he says the Brazilian economy began to grow at a modest pace in 2009, and the growth rate is expected to increase in 2010.
But there are headwinds facing the global economy, Mobius cautions. He believes that trade could suffer from the increasing protectionist moves by developed countries. There is also the threat of further upheaval in the foreign exchange markets. Finally, he says, a little recognized problem is the US$600 trillion in derivatives. "These currently represent 10 times the value of global GDP."
Mobius says that in 2010 he will continue to emphasize Asia and commodities in his emerging market portfolios. At the end of November, Templeton Emerging Markets held around 120 names. Its major country weightings were China (18%) and Brazil (17%), which Mobius says are "both are likely to stay at the top of the list in 2010," Other country weightings include South Korea (9%), India (9%) and Taiwan (9%).
The largest sector weightings at the end of November were oil and gas (22%), commercial banks (19%) and metals and mining (13 %). Mobius says the emphasis on natural resources is a longer-term call, given the industrialization under way in emerging economies and the accompanying demand for resources. His focus on banks will persist, he says, since banking is one of the industries benefiting from the growth in personal consumption in developing nations.
A stock that illustrates Mobius's enthusiasm for both China and for energy is PetroChina Co. Ltd. ( PTR), one of his top 10 holdings. This integrated energy company is the largest oil and gas producer and distributor in China and one of the largest energy companies in the world. "This company is doing well."
When it comes to mining, Mobius points to Anglo American PLC as a stock that offers "compelling value." It is also a significant weighting in the fund. This South Africa-based mining company is one of the largest in the world producing gold, platinum, diamonds, coal and base metals. It has mines both in South Africa and in other key mining areas globally.
"There are risks," Mobius acknowledges. For example, in its South African operations, the company has had to deal with electricity shortages. "But the potential rewards of Anglo American's stock outweigh the risks."
A Brazilian bank that plays into Mobius's theme of growing domestic consumption and general economic growth in the country is Itau Unibanco Holding S.A., which has a U.S-listed ADR ( ITUB). This bank's business "runs the gamut of commercial, industrial and consumer banking."
The result of a merger of two major Brazilian banks in February 2009, Itau Unibanco is now one of the largest banks in Latin America, Mobius says. "The Brazilian banks have successfully lived through rough patches in that economy, for example, during the period of very high rates of inflation, and are well placed to finance the country's growth."
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