Investment Adventures in Emerging Markets

Corrections Are Part of the Market Cycle

I arrived in Ho Chi Minh City in Vietnam on Friday via transit in Dubai. Interesting that I passed through Dubai. Of course, that city-state has been in the news since Friday, when the government-owned Dubai World and a few of its subsidiaries announced a debt standstill – that they would not be meeting their debt obligations over the next six months while a restructuring is arranged. It is important to note that the Dubai problems affect markets around the world, because a number of major international banks are exposed to Dubai debt and several international construction companies have had major contracts in Dubai. The negative news impacted markets globally, particularly in Asia. Major Asian stock exchanges in Hong Kong, Tokyo, Seoul and Mumbai were down on Friday, but advanced on Monday. Middle Eastern markets in Muslim countries such as Dubai and Abu Dhabi have been closed since last Thursday due to the Eid religious holiday. Most markets in the region resumed trading on Monday or will resume on Tuesday. While markets in the United Arab Emirates opened on Monday, they will be on holiday again for most of the week.

 

The Dubai World news is certainly not good. But as I have said many times, in any bull market we expect that there will be corrections along the way. In our view, these corrections can be quite healthy, because to us it means that valuations will come down to more reasonable levels. This kind of volatility in emerging markets is what we expect and why it is so important to have a long-term investment horizon. We view these opportunities as a time to continue holding quality investments and to increase our holdings in selected stocks that we believe, over a five-year time frame, will continue to show stable financing and good earnings.

Understandably, there is nervousness whenever there is less than positive headline news on emerging markets. We have to learn to look beyond the short-term headline news – this is one of the core principles of investing. Experience has shown that the best investment results can come from taking a long-term view and not panicking when the news is bad or some crisis takes place. As long as we take care to invest in strong companies with capable management teams, I believe we will be able to overcome such downturns. As I have said before, at Templeton, I believe our focus on long-term value and company fundamentals puts us in good stead to manage through such uncertainties. Our on-the-ground, long-term perspective is what differentiates us from other foreign investors who may sometimes panic at the first sign of uncertainty.

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