'One thing the government has failed to do is to spend on infrastructure. The other thing is to make it easier for people to invest. The government needs to loosen up investment regulations and allow infrastructure spending to be shared with the private sector.'
Mark Mobius is the founder, Mobius Capital Partners. Speaking to Samie Modak on the occasion of the launch of his book Invest for Good, the investment guru explains why companies need to focus on corporate responsibilities and good governance.
How will the trade war impact world economy?
In the short-term, people will pull back, not make fresh investment commitment due to heightened uncertainty. But there will be people who will benefit from this. A good example is Vietnam benefiting from the problems in China.
Do you think it is rational what US President Donald Trump is doing?
There is a whole class of people -- those in the middle- and lower-income bracket -- in America who have been ignored by the elites in Washington.
If you go to any great American city, it is quite frightening. There is a feeling of lack of hope. Trump is tapping into this feeling. He is saying ‘you have been ignored. I am going to take care of you. The way I will do this is by going after China, Canada, and Mexico and getting your jobs back. Stopping the immigration as these people are taking your jobs’.
Where will all these lead us to?
What is happening is that the populist movement is spreading. People are saying we have been ignored and are fed up.
Prime Minister Narendra Modi is also tapping into the populist sentiment.
What is more salient is that the internet revolution is placing information in the hands of the people. It is more immediate. It is also enabling people to organise demonstrations.
Look at Hong Kong. If the elites don’t listen and there are no changes, it will lead to fascism and communism. You saw that in Venezuela. You had six families controlling the whole country.
India’s economic growth has slowed. Do you think it will go down from here before it goes up?
I think things will look up. Modi and his party will have to deliver if they want to stay in power. They have been delivering some of this. The direct bank account transfers, Aadhaar has helped a lot of people in India. It remains to be seen how widespread it is.
One thing the government has failed to do is to spend on infrastructure. The other thing is to make it easier for people to invest. The government needs to loosen up investment regulations and allow infrastructure spending to be shared with the private sector.
He has merged the banks, but also needs to issue more shares to the public -- both foreign as well as domestic.
Your new book is titled Invest for Good. What are some of the key things you look at if you have to invest for good?
The name implies investing for the long term. It also means being good for people who are investing and also being good environmentally and socially. We have to change the corporate responsibility mindset.
Environment, social, and governance (ESG) in our view is very important. Most important is good governance, without which you can’t do much about social and environmental aspects. The reality is that companies that score high on ESG tend to do better.
How does India score on the ESG front?
India is no better or worse than any other country. Of course, there is higher awareness in Europe and America. But doesn’t mean they are more compliant.
The good news about India is that you have an English-speaking corporate culture which enables information sourcing from the world over.
What approach do you follow when it comes to ESG investing?
We have a checklist of ESG. We tell companies how they fare and engage with them to improve. We have a friendly approach.
Right now, MSCI and others score companies on ESG parameters and there are funds which invest in only those companies. Our job is to discover companies that don’t have ESG score and help them change. So we can then get more price appreciation.
Once a company becomes ESG compliant, it gets higher premium.
For us, there are two pillars for any corporation. The first pillar is valuation. We look at companies that have high return on investment, return on capital employed, low debt, and good management. The second pillar is ESG.
Global markets have been weak for the past few months. Do you expect them to fall further and put a pause on fresh investments?
I think the US Federal Reserve will lower rates. We will go ahead with the investments. We will certainly not stop. There are always these pressures on whether you should be fully invested or not. I say it doesn’t make a difference as long as you make good investments.
Typically, good companies trade at high price-to-earnings (P/E). Are you comfortable investing at lofty valuations?
Very often investors look at P/E or price-to-book to arrive at valuations. We don’t do that. We look at return on invested capital, debt-equity ratio, and dividend track record. We look at safety, solid financials, and growth. Then we look at other factors.
We are not too worried about high P/E. The market always looks forward, so a high P/E can quickly become low.
Tell us about your fund and the countries and sectors you invest in?
The total fund size is $170 million. One is an UK-based investment trust and other is an open-ended fund based out of Luxembourg. We have about 20 per cent of it invested in India, which is among our top countries.
Besides India, China, Turkey, Mexico, Poland, Taiwan, and South Korea are the markets we invest in.
We have invested in software, finance companies, and manufacturing.
From a long-term perspective, we will do more in consumer, as per capita consumption is going up.
So far, we have made good investments. We haven’t made any money; it is still early days.