A global tour with Mark Mobius

The veteran investor talks emerging markets, Saudi Arabia, and the looming confrontation between the US and China — as well as giving his reading recommendations

DUBAI: You come away from a meeting with legendary investor Mark Mobius bubbling with ideas, a dozen possible news themes to follow up, and a long reading list.

He was in Dubai last week on a brief stopover in his global wanderings, to check progress on the apartment he owns in the Address Downtown Dubai that was damaged by fire last year, among other things. The Middle East, it turns out, is very much on his mind these days, and Saudi Arabia in particular.

As executive chairman of the Templeton Emerging Markets Group — part of the $750 billion Franklin Templeton Investments giant — his job is to scour the fast growth areas of the world for potential investment prospects. Mobius likes what he sees in the Arabian Gulf.

“At the moment, out of $500 million we have invested in the Middle East, some $270 million is in Saudi Arabia. But there is $29 billion of assets in the emerging markets group. We could easily double the investment in Saudi equities. If the reforms in Saudi move ahead, we could easily absorb another $200 million to $300 million in Saudi Arabia,” he said.

High up his list of priorities is Saudi Aramco, the national oil company that is considering various options to go public on stock markets, including a global initial public offering (IPO) on one of the big stock exchanges, maybe in partnership with a big foreign investment institution from one of the fast-growth markets in which Mobius is expert.

“On Aramco, I think it would be better to wait until Saudi Arabia gets into the MSCI index,” he said, referring to the possible inclusion of the Kingdom’s stock market in the emerging market sector of the global indices. Such a move is forecast to increase Saudi Arabia’s investment visibility and attract more foreign funds, like his.

But Mobius said there would remain concerns about what he called “ESG” — the environmental, social and governance criteria that are increasingly important as investment factors.

“There are corporate governance issues that would leave a big question mark. The Saudi government is obviously running the show and will have to make it clear that the quoted element of Aramco is independent of the government. The way to do that is to have truly independent directors and ensure that they and the shareholders will get a chance to vote on key issues,” he said.

There were other issues regarding Aramco, he said. “It would also be good to spin off those things like schools, hospitals and social projects that are not strictly part of the oil business,” he said, although he conceded that financial considerations would go a long way to easing investors’ concerns on these matters.

“The dividend policy will also be important in determining investor attitude. A good dividend might help overcome corporate governance concerns. People will forgive transgressions if there is a big dividend in prospect,” he said, and he urged the Saudi authorities to take their time in addressing these matters.