(This article first appeared in The Edge Financial Daily, on March 16, 2016.)

KUALA LUMPUR: When Khazanah Nasional Bhd executive director Datuk Charon Wardini Mokhzani asked seasoned emerging markets investor Mark Mobius which markets he favoured, the expert replied that Malaysia features high in his list.

Noting that the ringgit is undervalued by 28%, and that the emerging markets in general are currently trading at attractive valuations, Mobius said it is time to pick up stocks here, given the emerging markets’ tendency to enjoy longer bull runs historically than market routs.

“We are very positive on Malaysia now … We figured the currency is undervalued by 28%, which is why we have been buying Malaysian stocks,” said the executive chairman of Templeton Emerging Markets Group.

He was speaking at the Securities Commission Malaysia’s Global Emerging Markets Programme Conference yesterday. Charon was the moderator for Mobius’s panel session.

Mobius, who has been investing in emerging markets for four decades, rubbished fears of eroding fundamentals in Malaysia and this region. According to him, when the ringgit was valued at 4.21 against the US dollar towards the end of January, it was valued 28.3% lower than the Malaysia/US dollar Purchasing Power Parity Index of 3.01.

While the ringgit has been recovering from the 18% rout last year, it is still not far off from the value Mobius cited. It closed 0.78% lower at 4.137 per US dollar yesterday.

“Emerging markets have been out of favour, and this makes me very happy … We tend to go to where sentiment is negative,” he said. Last year, foreign investors withdrew RM19.5 billion from Bursa Malaysia.

While Malaysia’s slower official projected economic growth of 4% to 4.5% this year has caused uneasiness among many investors, Mobius argued that the projected range is still impressive and it is hard to etch a bigger growth rate from a higher base. He also said that not many countries can record a trade surplus now, but Malaysia can — although the figures have been falling over the years.

Mobius observed that while Malaysia’s stock market has seen a slight recovery recently, the benchmark FBM KLCI is still far below its peak closing of 1,892.65 points two years ago.

At yesterday’s close of 1,690.92 points, the composite index was trading at a projected 16.23 times earnings for calender year 2016, and 15.01 times earnings for 2017, Bloomberg data showed. This compared with 2015’s price-earnings ratio of 17.8 times.

Mobius also said that over the past two decades, the MSCI Emerging Markets Index tended to have a bear market that ran for an average of 14 months, versus bull markets that lasted for 69 months. The losses during the routs averaged at 57%, which paled in comparison to average gains of 358%. Malaysia makes up one of the 21 emerging markets in the index, which also includes Brazil, Chile, China, Turkey, and Thailand.

Noting that emerging markets’ stocks can offer attractive yields of between 4% and 6%, Mobius said this presents opportunities for funds to return to this side of the world as developed markets introduce more stimulus measures by postponing interest rate hikes or cutting them to below zero altogether.

“We see that the US markets have peaked. So they are either going sideways or down, which will be good for emerging markets because a lot of money came out from there and went to the US [over the past three years] because of expectations that stock prices will go up and its currency was strengthening on higher interest rates.

“Now that the Fed (US Federal Reserve) has hesitated in recent weeks with the idea of raising rates, money exits in search of better opportunities,” Mobius said.

He also seemed excited by the oil rout, saying “there are opportunities resulting from commodity prices’ declines”. Although he is of the view that crude oil prices have bottomed out, Mobius said there are still many opportunities from the consolidation of the industry.

According to him, he recently had a discussion with a vessel supplier for oil and gas-related companies, which is still generating strong cash flows, although its income statement showed losses because it had to incur depreciation of its asset values according to current market prices.

“When commodity prices pick up over the next two to three years, this company will do very well. When the industry consolidates, there will be less competitors. So the company’s market position will be stronger,” he said.