By Mark Mobius
Managing Director of Templeton Asset Management


Recently, we have seen volatility across emerging markets and investors rush to raise cash in an effort to reduce their exposure to these markets.

Given the rout in global emerging stock markets we're witnessing today, I'm not very worried because this is not the first time markets have corrected or that we've witnessed uncertainty in the markets. Investors should expect volatility, as is the nature of any stock market, but we expect long-term investors to be rewarded.

It's impossible for anyone, regardless of how much experience they have in stock markets, to predict exactly how much a market is going to decline before it turns around. No one can predict the market direction and a bear or bull market could start at any time.

However, the good news is that bear markets are shorter in duration than bull markets and bear markets go down a smaller percentage than bull market increases. This is why one must invest with a long-term view.

The current market decline is not comparable to the Asian Financial crisis of July and October 1998 for the simple reason that Asian markets, and for that matter most emerging markets, are in a much better position than they were about 10 years ago.

The crisis in 1997/8 began in Asia and spread globally.

Currently, however, Asian economies are better equipped that they were 10 years ago to weather any global issues/slowdown as many have abandoned their pegged exchange rates, decreased short-term debt and built up large current account surpluses and foreign exchange reserves.

Most Emerging markets are in fact now benefiting from stronger economic growth, relatively lower inflation and interest rates, the implementation of effective fiscal and monetary policies, stable political environments, improving corporate governance, the enhancement of competitiveness through removal of subsidies and reduction of trade barriers, higher productivity and consumption because of a younger and better trained labor force, and so forth.

Asia is the largest emerging markets region in the world and home to some of the fastest growing economies globally. In fact, more than 50% of the world's population lives in Asia providing the region with a huge consumer base.

One of the key supporting factors for investing in Asia is its robust economic growth. Asian economies have not only been growing faster than developed countries in North America, Western Europe, Japan, Australia and New Zealand but also their emerging markets counterparts.

Over the last ten years, Emerging Asia has recorded an average annual growth of 7.3%, compared to 2.7% for developed markets and 5.8% for global emerging markets.

Moreover, economists expect this growth trend to continue for the foreseeable future. Emerging Asia is expected to grow 8.8% this year, more than triple the developed markets' 2.5% forecast. And in line with that, the earnings growth in Emerging Asia is expected to be much stronger than that in the developed world.

Asia's economic growth has also been supported by the region's export growth momentum and more recently by growing consumer demand.

In addition, dependence on the US as an export outlet has been decreasing in the region. Japan and China's role as outlets for exports from the rest of Asia also needs to be underlined. In addition, lower labor costs allow Asian markets to undertake competitive pricing to boost exports.

One of the main investment themes in Asia is increasing consumption.

As a result of increasing per capita incomes and relatively young population structures, Asian economies are increasing domestic consumption of a wide range of goods. For example, in India and China, the number of cellular phone subscribers per 100 people in 2006 was 13 and 35, respectively.

While in developed markets such as the UK and US, it was 117 and 77, respectively. Thus, the potential for growth is enormous, with this growing demand expected to further boost domestic consumption and industrial output, leading to greater corporate earnings in the region.

Commodities have also been an important driver in Asia, given the increased demand from Asian industries. This growing demand is expected to further boost domestic consumption and industrial output.

Additionally, we'll see countries in Asia converging more and more as they increase trade with each other. We see this growth in the trade that Taiwan and Korea are experiencing with China.

Moreover, companies with good corporate governance can be expected to attract greater investor interest. As a result of corporate scandals in the US and other developed markets, Asian markets are no longer perceived in such a poor light compared to developed markets in this regard.

More importantly, global investors' heightened awareness of corporate governance, has forced Asian companies to improve their standards. While some improvement has been seen, there is still a lot to be done and we expect to see continued progress in the future.

My advice to emerging market investors would be not to panic for recent volatility. It is very easy for us to be caught up in emotions or simply follow the herd.

I would suggest that investors take a long-term view to investing and carefully evaluate their options. History has shown us that the best time to buy is when everyone is despondently selling. This enables us to pick up stocks at more attractive prices.

The best strategy would be to remain diversified rather than pick one or two countries in the emerging market universe, since it would be difficult to know which market will outperform.

Thus, maintaining a diversified portfolio will allow an investor to better manage his/her risk levels. Also, value is the key. The best protection is to select companies that are selling at a discount to what they are really worth and companies with good managements capable of realizing the firm's intrinsic value.

Templeton's value investing strategy serves our investors well in these times of volatility as we invest in undervalued opportunities and adhere strictly to our value philosophy. Our investment strategy is focused, determined and constant. It is founded on value, patience and fundamental research.

Companies are evaluated on a five-year investment horizon with a focus on long-term potential, and not on short-term fluctuations. This also means that we do not "chase" stocks; rather, we allow undervalued securities time to appreciate as they gain recognition by the market.

The markets may continue to be volatile at times, but the underlying fundamentals of emerging markets remain in tact.