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Passport to Profits: Why the Next Investment Windfalls Will be Found Abroad and How to Grab Your Share

Passport to Profits: Why the Next Investment Windfalls Will be Found Abroad and How to Grab Your Share

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Passport to Profits: Why the Next Investment Windfalls Will be Found Abroad and How to Grab Your Share

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Lançado em:
Jan 19, 2012


Emerging market investment advice from a seasoned pro

Mark Mobius, the man the Wall Street Journal has proclaimed "the King of the Emerging Market Funds," spends eight months of the year traveling the globe in search of hidden market bargains overseas and in Passport to Profits: Why the Next Investment Windfalls Will be Found Abroad and How to Grab Your Share, Revised Edition, he shares what he's learned. In a globetrotting tour taking you from the Baltic coast to Brazil, Mobius reveals his own experience-tested guidelines for investing abroad. Analyzing companies and new markets, identifying potential pitfalls and overlooked values, crunching numbers and meeting the local players, he knows where true growth is, and with this book in hand, you will too.

Presenting a straightforward, practical investment philosophy based on one key, indisputable fact: that the rest of the world's economies have far more potential for growth than our own, Passport to Profits shows even the most casual investor how to view investing abroad, how to devise a global investment strategy, and the pros and cons of buying individual stocks or mutual funds. The development of stock market infrastructures in emerging economies has opened up potential for impressive returns, and this book is your guide to cashing in.

  • Illustrates the four keys to determining if a country is investment-friendly and how to gauge political climates for great investment opportunities
  • Analyses the 2008 crisis and its implications for the development of the emerging financial markets
  • Explains the rules for investing abroad that too many investors fail to understand

An adventurous and honest insight into the art of investing in emerging international markets, Passport to Profits provides the hands-on experience you need to balance the risks and reap the rewards of global investing, right from the comfort of your home.

Lançado em:
Jan 19, 2012

Sobre o autor

Mark Mobius is a founding partner of Mobius Capital Partners. Previously he was Executive Chairman of the Templeton Emerging Markets Group and spent over 30 years investing in emerging markets all over the world. Mark served on the World Bank's Global Corporate Governance Forum and as co-chairman of its Investor Responsibility Task Force.

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Passport to Profits - Mark Mobius



On the Frontier of Emerging Markets


Introduction to Emerging Markets

Emerging markets are the frontier of the investment world and as we move forward in this wonderful business arena, we continue to pursue new markets. When we first started investing in emerging stock markets in 1987, we were at the frontier of investing in global equity markets. In those days, many countries were not open to foreign investors and many did not even have stock markets. Gradually more and more countries finally abandoned the socialist/communist economic model. Governments came to realize that a market economy would yield faster growth. This resulted in both bond and stock markets opened not only for local investors but foreign investors.

Of course, before we entered a new market there were many administrative and technical details to surmount such as establishing a custodial bank to safe keep our securities, studying the local laws and regulations, learning about the complexities of specific country trading systems and many other details in addition to the main task of learning about the possible company investments. After a great deal of hard work we went from only five stock markets in 1987 to about 60 markets today. From US$100 million in 1987, the emerging market funds grew to more than US$40,000 million.

We recognize that among the emerging markets is a long list of new markets and they are showing even faster growth.

Why Seek New Frontier Markets?

The simple answer is growth. Between 1989 and 2011 frontier markets had a compounded annual growth rate of almost 10 percent, faster than any other group of countries. In fact, in the past 10 years, the top-10 fastest growing countries have all been emerging markets and nine of those have been frontier countries. It is surprising to learn that those fastest-growing countries, in addition to China, included the frontier markets of Angola, Myanmar, Nigeria, Ethiopia, Kazakhstan, Chad, Mozambique, Cambodia, and Rwanda. In 2010, Vietnam grew by 6.0 percent, Nigeria by 7.0 percent, and Qatar by 18.5 percent, compared to the average of only 2.3 percent for developed economies.

The future potential growth is also great. Although 16 percent of the world’s land area and 17 percent of the world’s population is in frontier markets, only 6 percent of the world’s gross domestic product is in those markets. That gap is being closed rapidly given their rapid growth rates as more and more countries catch up in production and consumption. For example, while the penetration of mobile phones in Japan and the United States is more than 90 percent, in Nigeria it is only 56 percent, while in Bangladesh, it’s 32 percent. But they are catching up fast as per capita incomes rise and distribution/communications systems expand.

These frontier markets are markets that normally investors would shy away from because they may be perceived to be too risky, too small, and too illiquid. However, we have found them to be not only faster growing but also with a number of characteristics that make them safer than imagined. For example, they generally have lower debt and higher foreign exchange reserves in relation to their gross national product. With economic growth comes market and capital market growth so these markets are quickly moving from small and illiquid to large and liquid.

Attractive Investment Opportunities

These countries have enormous reserves of natural resources. Companies that are strong producers of commodities such as oil, iron ore, aluminum, copper, nickel, and platinum look especially interesting. Infrastructure development in emerging markets has led to continued demand for hard commodities, but demand for soft commodities such as sugar, cocoa, and select grains has also increased. Many of the frontier countries are already leading producers of oil, gas, precious metals, and other raw materials and are well positioned to benefit from the growing global demand for these resources.

In the consumer area, the rising per capita incomes mean that the demand for consumer products is increasing fast. The deceleration of population growth combined with high economic growth means that there is rising per capita income and increasing demand for consumer products. This has led to positive earnings growth outlook for consumer-related companies. We look for opportunities not only in areas related to consumer products, such as automobiles and retailing, but also related to consumer services such as finance, banking, and telecommunications.

Additionally, as the economies of frontier market countries expand, they continue to increase investments in infrastructure, offering interesting opportunities in the construction, transportation, banking, and telecommunications industries. Rising consumption provides these economies with strong purchasing power and the ability to spend their way into growth. Moreover, frontier market countries have been, and continue to be, positively impacted by the substantial investments made by large emerging market countries such as China, India, Russia, and Brazil.

The economic drivers across frontier markets are diverse. For example, Botswana, one of the world’s largest diamond exporters, is introducing data processing centers. Kazakhstan, a country rich in oil and other natural resources, is making significant investments in infrastructure development. These varied economic themes across frontier markets ensure a diversified portfolio.

The rising number of initial public offers (IPOs) in the frontier markets demonstrates that local capital markets have been steadily gaining strength. This is largely a result of governments selling some of their state-owned companies and assets to the public through stock market listings while entrepreneurs have increasingly been using the capital markets as a source of funding for business expansion. The increase in IPOs has, in turn, boosted the overall equity market capitalization of the frontier market universe and is starting to bring these countries and companies to the attention of more investors.

Do Your Research

Frontier markets are generally under-researched. They thus tend to be ignored by the majority of investors. In one month, approximately 30,000 company research reports are produced in the United States by brokers, banks, and other organizations. In Nigeria, it is less than 100. This lack of information for investors can be a plus for those willing to do original on-the-spot research. Thus frontier markets display even greater opportunities for those who are willing to do their research, visit the frontier market companies, and dig for information. To us, the fact that frontier markets are not well known and that not many investors are active in them (yet) means that there are opportunities to be found. Time spent on due diligence to assess the quality of the management team including more frequent on-site visits to evaluate the business effectively can uncover great opportunities. A visit is crucial as examinations of operations and factories often yield critical insight that cannot be seen through reading financial statements. A meeting with the company’s managers or a tour of the company’s factories can provide a wealth of knowledge that may otherwise remain undiscovered.

You’ll notice that along with visiting individual companies, it’s also important to keep your eyes open as soon as you land at a city and form a complete picture on the market, company, and people. Even small things like how modern the airport is, the efficiency of public transportation, how crowded a restaurant or hotel might be, how many tourists there are, can tell you a lot about the city.

Where Are These New Markets?

New markets are found all over the world—in Latin America, Africa, Eastern Europe and Asia. The list is long and includes such countries as Nigeria, Saudi Arabia, Kazakhstan, Vietnam, United Arab Emirates, Qatar, Egypt, Ukraine, Romania, Argentina, and many more. As I continue to travel the frontier markets world in search of investment bargains, I want to take this opportunity to share some of my notes with you.


Argentina, one of the top three economies in Latin America, had been experiencing good and steady growth throughout the years. Despite all the economic problems that have hit the country—from double-digit inflation to shrinking trade surplus—improvements were clearly evident. One good example was the Ezeiza International Airport, officially known as Ministro Pistarini International Airport. Since it was privatized, the airport is in much better shape today than it was in the past. Besides the bright and airy new wing, the customs and immigration process was quick and efficient.

We checked into the modern Hilton Hotel in the Puerto Madero area. Puerto Madero itself is a good example of transformation. It was a run-down port with derelict redbrick warehouses. Thanks to a creative entrepreneur, the warehouses lining the port canal were transformed into offices, restaurants, and apartments. The hip and wealthy had migrated to the area and across the canal along the ecological reserve in the Rio de La Plata (Silver River) riverbed; a slew of new high-rise, high-end apartments had been built. A half-hour walk from the Hilton along the canal was a booming floating casino that is seeing brisk business.

The Past

I can still recall visiting the country in 2002, when unemployment was at a record high, exceeding 20 percent, and the average Argentine income was less than a quarter of U.S. average. After defaulting on US$155 billion in public debt, the country became a pariah on international debt markets. One high-school chemistry teacher was quoted as saying: Our case has got to be unique in modern world history. To start off with such abundance and end up this poor, that, my friend, takes a very special talent.

During that trip, I had an interview with one of the leading newspapers, La Nación. In the article, the reporter quoted me as saying that the current government policies were not going to work and the International Monetary Fund (IMF) team members, who were in town, should not release money because it would be wasted. I said that the order of business should be to first return all the bank deposits, including US$ deposits, to all the depositors. I was shocked by the reaction to that interview. I had radio stations and TV stations calling me for interviews. I had simply said what everyone else had been saying privately but apparently unwilling to say publicly. It seemed that not everyone wanted to hear the harsh truth.

It was amazing to hear the standstill mode of all the companies. Investment projects were on hold until the next measures were announced. They expected daily announcements of new policies, which were fostering general insecurity.


This time, however, things were different. On our first company visit, we met with executives of a telecommunication services firm. In addition to providing local, long-distance, and international phone services in Argentina, the company also provided cellular telecommunication services and published telephone directories through its subsidiaries. We were told that operational results had been positive as a result of strong consumption growth patterns and a favorable macroeconomic environment. The company had continued to report solid results in both mobile and fixed-line operations, and it had also maintained reasonable EBITDA (earnings before interest, tax, depreciation, and amortization) margins despite the challenging inflationary environment and the fact that mobile and broadband penetration were approaching saturation in the country. Although the company estimated that high usage was likely to allow revenues to grow at a healthy pace, it warned that margins could deteriorate moderately on the back of wage pressures.

A Steel Producer

We also visited a leading Latin American producer of crude steel, with production operations in both Argentina and Mexico. What was interesting to us was that the company appeared to have an attractive cost structure due to its integrated operations, state-of-the-art steel facilities, access to diversified sources of low-cost raw materials, and other input and operational efficiencies. The company improved operations in the first quarter of 2011, as a result of solid volumes and better prices. It also indicated that it expected higher product prices and margins in the second quarter as well. However, a key factor that the company had to consider—and that also factored into our evaluation process—was the rising cost of raw materials such as iron ore and coal. Given the low premium for slabs, the company informed us that it deferred investment plans to expand capacity for crude steel and has been instead, focusing on enhancing value-added capacity in the downstream production process. The management expected there to be at least three more years of spare steel capacity in the world as well as slab premiums to remain low. As soon as demand outpaced supply, the company expected to resume its project to expand crude steel expansion and slab production.

Oil and Gas Equipment Supplier

Another interesting visit we made was to an energy-related company, a leading global manufacturer and supplier of pipes and associated services for the oil and gas industry, among others. The company had production, distribution, and service capabilities in key markets across South America, North America, Europe, and Asia. Solid first-quarter results were recorded as a result of strong volumes across the board in all its product segments and regions. Management informed us that the oil and gas industry had been witnessing a new cycle of investments and that the company was operationally prepared to service this growing market. Moreover, they pointed out that the sustainability of this cycle was likely to be supported by high oil prices, paving the way for higher drilling activity worldwide.

The Delta

During our trip, we took one day out to visit the Rio Plata’s Delta to the riverside town of Tigre. The name is derived from tigres or jaguars that were hunted there in the past. The Delta is a complex of tightly packed canals and islands that reminded me of the Mekong River Delta in Vietnam and the Chao Phraya River Delta in Bangkok, where you could explore hundreds of winding canals. It is a popular summer holiday spot with thousands arriving by car or train from Buenos Aires. The Delta waterways were filled with picturesque summer houses, where the only way to get around was by boat.

When we arrived, the place was packed with boats of all sizes, ferrying people to their summer homes or restaurants, which were scattered across the Delta. We took an hour tour on a 30-person mahogany ferry, which ended at a rural restaurant, where we sat down to a delicious Argentine steak lunch. Buenos Aires probably has some of the best selections of restaurants in the world with steak, of course, being the mainstay. Looking out the window of the boat was like watching a movie of English-style rowing clubs, marinas, quaint vacation cottages, and elegant Belle Époque–style mansions lining the waterways.

We returned to the city on the Tren de la Costa (Train of the Coast), a 15.5 km, 11-station light-rail line, which was originally developed in the late 1800s but was abandoned in 1961 and left to deteriorate for 30 years. Subsequently in 1990, the line was privatized and restored.


All in all, we were very pleased with our trip and the discussions we had with numerous companies. We look forward to returning to the country for more of such visits and those delicious steaks, of course.


I was in Chile two weeks before the 2010 earthquake and was shocked and saddened to hear of the impact of the powerful earthquake. It was estimated that the earthquake impacted 13 percent of Chile’s GDP, which meant that 87 percent of the GDP was not impacted. I had an apartment in Chile and although the building was not destroyed and was structurally sound, cracks formed in various parts of the apartment.

We must accept that earthquakes, volcanic eruptions, and other natural phenomena have been with us in the past and will continue in the future. Chile, too, had experienced such events and had been able to recover and prosper. We believed this would be the case this time as well. Since copper and other minerals are Chile’s major exports, it was important to learn that the mining industry in the north of the country was not impacted by the earthquake.


Chile is probably most famous for its copper production. One of the first investments we made in the country was through a London-listed company called Antofagasta. The company had an interesting history starting with a railroad built in the north of the country to connect Bolivia with the Antofagasta port on Chile’s coast. Eventually the company’s control passed from British investors to the Luksic family, which expanded the firm’s copper mining interests. The firm’s giant Los Pelambres mine was the family’s most important. The total mine life could reach 50 years without new exploration. They also had mining interests in Peru, together with the Brazilian company, Vale (previously known as Companhia Vale do Rio Doce). The railway operations—although overshadowed these days by the copper mining earnings—encompass an extensive rail and road network, centered in the port of Antofagasta, which serviced the mining region of northern Chile. Most railway revenues came from third parties, and not from their own mining companies. The railway was not a monopoly in this region, there were roads and trucks, but Antofagasta also had a road transportation company.

We visited the company during our visit to the country. Antofagasta still had one of the lowest-cost copper mines in the world. Management discussed its expansion plans into another region in Chile as well as a copper project in Pakistan and a copper-nickel-platinum project in the state of Minnesota in the United States. Copper demand continued to rise globally. The major use (more than 70 percent) for copper is, of course, for electricity transmission. Some competition comes from aluminum for high-tension lines because of its lighter weight, but energy losses are higher than for copper.

A Soft Drink Bottler

Turning to the consumer market, we met with management at the bottler for Coca-Cola products and other drinks. The company was not only operating in Chile but also in Argentina and Brazil. Its big worry was the cost of sugar. Brazil was looking forward to the Soccer World Cup and the Olympic Games in Rio, which would have a positive impact on its volume. International prices for sugar had risen to US$750/ton versus only US$250/ton two years earlier. The higher sugar costs were partly offset by stronger local currencies and the decrease in polyethylene terephthalate (PET) resin prices. In Chile, it was expanding with a new facility outside of Santiago valued at US$70 million.

Air Transportation

We also visited a successful Chilean airline, which had been able to outperform the growth in the industry’s traffic statistics as a result of the development of its regional domestic operations in Chile, Peru, Argentina, and Ecuador. In the cargo business segment, the company had suffered a contraction in international trade, in line with reported industry trends. Despite the weakness in traffic and negative fuel hedge charges, the airline was able to avoid reporting operating or net income losses in 2009. Management mentioned that demand was strong enough to allow the company to pass on higher fuel prices as surcharges. The company was the best airline in the region and had a diversified operational footprint, combining both passenger and cargo business segments. The airline had been expanding its operations by establishing domestic operations in Ecuador, Peru, and Argentina in addition to its original Chilean operations, which allowed it to fully utilize the maximum amount of service hours on its planes. The growth engine provided by the development of its domestic regional operations should continue to support the passenger business segment, while improved economic growth should be positive for international trade and its cargo operations.


At a bank in downtown Santiago, the executives said that the new government planned to establish a ministry of entrepreneurship to support this segment of the economy. Inflation was a key indicator for the bank because wages were adjusted by inflation throughout the country if the tenure was more than one year. About 50 percent of the working population had its wages indexed and hedged from inflation. The executives said that Chile had experienced an impressive social transformation in the past 27 years and had integrated a massive amount of people to the middle class.


At a leading telecommunications company, mobile subscriber growth was 4 percent in 2009. Management was optimistic on the growth perspectives in the mobile business, especially for new services related to 3G technologies. They thought that there was still room for expansion despite a 93 percent penetration rate in the mobile segment. With a 39 percent market share, the firm was focused on the high-end and postpaid segment. In the wired line business, the company had been concentrating on servicing business clients with high-speed telecommunications facilities.

Pulp and Paper

A diversified pulp-and-paper company that we visited was able to purchase a major pulp facility in Brazil from a competitor that had lost more than US$1 billion in derivatives. The officers at the company assured us that they did not enter derivatives transactions. The controlling family remained involved in business-making decisions. The family also owned a bank and understood derivatives. In the lumber business, the family exported mainly wood moldings to Home Depot in the United States. They owned 1 million hectares of forest land, which was the base of their competitive advantage in the pulp business. Their forest base was young; they were harvesting 9 million cubic meters annually and could harvest up to 13 million cubic meters per year. Argentina has the best pine plantations globally; the growth cycle is 14 years in Argentina, compared to Chile’s 24 years. The family members owned some forests in Chile, too, but were waiting for a more stable political environment before starting an industrial project. They were also looking at several biomass electricity generation projects, which could total up to 150-megawatt-installed capacity.

Viña del Mar

After our company visits, we headed for the coast and Viña del Mar resort. At Viña del Mar, we enjoyed fantastic views of the ocean from our hotel balconies. Walking down the oceanfront toward the casino and the town, we passed an English-style castle hanging over the sea—Wulff Castle or El Castillo Wulff, as it is called in Spanish. It was built by Gustavo Wulff, a German saltpeter and coal trader and a shipper who migrated from Germany to Chile in 1881. The Viña del Mar city purchased the castle in 1959 and it is now a museum. In 1995, it was pronounced a National Historical Monument by Chilean Law.

Viña is actually an outgrowth of Valparaíso. Valparaíso became important after a railroad was constructed joining it with the capital Santiago. We took the train to Valparaíso (Valle Paraíso or Paradise Valley), one of the country’s main seaports and host to not only freight ships but also passenger cruise liners. Oddly, although Santiago is Chile’s official capital, the National Congress of the country meets in Valparaíso. Moreover, Valparaíso’s newspaper, El Mercurio de Valparaíso, is the oldest Spanish-language newspaper in circulation in the world.

Valparaíso was declared a World Heritage site by UNESCO because of its urban design and unique architecture. The World Monuments Fund declared Valparaíso’s unusual system of funicular—highly inclined cable cars moving up the steep hillsides of the harbor—as one of the world’s 100 most endangered historical treasures. Houses that are interspersed with a labyrinth of cobblestone alleyways exist on the steep hillside overlooking the Pacific Ocean. The city attracts as many as 50 international cruise ships each summer. Recharged from our visit to Viña, we headed to our destination.


On landing in Lima, Peru, we noticed lots of improvements at the airport, but unfortunately the smooth flow was interrupted by the customs officers. When my bag went through the X-ray machine, all the wires and attachments I need for my laptop, camera, iPad, BlackBerry, and other equipment showed up, leading the inspectors to gather around. I thought that they suspected that I was carrying some dangerous items but actually the customs officer was looking for goods on which to slap a nice import duty. After convincing them that the equipment was for my own use and not for resale, we headed into the city.

Lima was hectic and like other cities in Latin America, private enterprise was alive and well. The local currency, the Sol, was and is freely traded. There were many opportunities to exchange US$ or euros into Sol. Bargaining was rife.

Hey, want to change money?

I’ll give you 3.25 for one dollar.

Then we walked away and he yells: I’ll give you 3.60!

The banks were losing out on the money exchange business as a result of the competition from the street money changers until fake U.S. dollars started appearing. One of the banks said that it got a lot of the business back when it offered to accept any fake dollars that people had. So customers came flocking back.


Our first company visit was with a mining company whose assets included gold, silver, copper, and zinc mines. Earnings were now booming with the surge in gold, silver, and base metals prices. It was also benefiting from greater production at its mines. Gold in Peru is not only in the mines, but also buried in ancient Inca burial sites. I’m always amazed to read about new discoveries being made around Lima of significant gold hoards by archaeologists and the active illegal poachers.


Next, we moved on to visit the modern headquarters of the largest financial private financial institution in the country. It was one of the best-managed financial institutions in the region. It had an offshore bank, an insurance business, and a pension fund business. Its business perspectives remained positive in the context of a strong Peruvian economy and the leading market position of its banking business. The bank’s officers were, however, a little concerned about the U.S. subprime crisis but didn’t think it would have a significant impact on their operations. This was because the United States represented only 20 percent of the country’s exports. Most of Peru’s exports actually went to Asia.

For banks, however, the US$ was important. About 60 percent of lending in the Peruvian banking system was still in US$, although the percentage had come down during the past couple of years. In the consumer loans segment, they had a good database and scoring system that had been tested in a full cycle. The nonperforming loans ratio was 2.0 percent for consumer loans and 1.6 percent for mortgage loans, which by international standards was very good. They saw potential problems in microfinance, as their database did not have a lot of history. Overall nonperforming loans, including the solid corporate loans, were 0.7 percent of their loan book and the coverage ratio is now 350 percent. In order to cope with the increasing demand for financial services, banks were being more aggressive in opening new branches and ATMs. We were told that a newly opened branch became profitable in only 12 to 18 months, which compared favorably to Chile’s five years.


Overall, things looked good in Peru and we would continue to invest. With its rich mineral reserves, a growing tourist business, and a thriving domestic economy, Peru remains one of Latin America’s highlights.


Cambodia was a big surprise. And it wasn’t because of Angkor Wat but because of so much more that was happening in the country. It isn’t a big country. Compared to its neighbors, its population is only 14 million, while Vietnam has 84 million and Thailand has 65 million. Of course, it has more people than Laos’ 6 million. Of those four adjoining nations, Cambodia has the smallest land area of about 177,000 square kilometers compared to Laos’ 231,000 square kilometers, Vietnam’s 325,000 square kilometers, and Thailand’s 512,000 square kilometers. I always look at these countries together because they share so many cultural and historical characteristics.

Siem Reap

Although this was a business trip to visit one of our investments in the capital Phnom Penh, we decided to fly directly to Angkor, or more formally the Angkor Archaeological Park. The airport at Siem Reap, the two adjacent to Angkor was an international entry point because of the many tourists visiting. The terminal was tastefully finished with Khmer statues and decorations. More importantly, the customs and immigration formalities were quick, something that was becoming rare around the world. The hotels are up to international standards and maintained the general milieu of the Angkor site. We stayed at the beautiful Sofitel Royal Angkor Resort, which was designed in a traditional Cambodian style with probably one of the world’s most interesting swimming pools, decorated with ancient-style statues, water lilies, and other fauna. Cambodia is part of French Indochina, so the tasteful French influence was evident in the hotels and restaurants providing many nice hotel choices: Le Meridien, Raffles Grand Hotel D’Angkor, and Empress Angkor.

Angkor Wat

In order to see the various sites we rented bicycles. At first we thought it would be an easy cycle but we underestimated the size of the park as well as the number of ruins that were interesting to see. Cycling was a great way to see a place that is probably one of the greatest archaeological sites in the world. Angkor Wat itself, the central palace, is only one part of the entire Angkor complex.

If you started early and cycled quickly you could probably see it all. We started late at about 10 a.m. and didn’t see it all before the park closed at 6 P.M. I hope to go back one day, not only to see the rest of the fabulous sites but also to buy the great handicrafts that hawkers were selling at all the sites. One hawker had a beautifully crafted traditional violin made from bamboo and hardwoods—the price US$10. Another had a bamboo flute that I could actually play for US$1! As we visited the various sites in the area, we realized that the archaeological search and restoration had a long way to go and that assistance was coming from all over the world. We saw sites that were being worked on by the Chinese, Germans, and various international organizations, as well as, of course, the French.

Phnom Penh

After Angkor we flew to the capital, Phnom Penh. There we could tell that Cambodia was enjoying an economic boom. In the few years prior to our visit, the country had been growing at about 9 percent a year as a result of a spectacular construction boom, increased garment exports, and tourism, which resulted in almost 2 million visitors a year. Garment exports rose 17 percent to more than US$2.5 billion in 2006, with most of it going to the United States. Tourism, mainly because of Angkor, earned the country about US$1.4 billion in 2006. The optimism could be felt as we traveled around the country and particularly in Phnom Penh. Our visit to NagaCorp’s NagaWorld hotel and casino complex in the heart of the city was an eye opener.


Dr. Tan Sri Chen, who was the chairman of listed companies in Malaysia as well as an economic advisor to the prime minister of the Cambodian government, had created an attractive complex drawing visitors from China, Hong Kong, Singapore, Thailand, Malaysia, and other countries in the region. He graciously showed us the entire well-run complex as well as related his plans for extending the complex. Those plans called for the construction of a spectacular water fountain display in front of the complex and for the development of many other facilities.


Despite the sad history with the Khmer Rouge and the killing fields atrocities, the people were clearly in a positive mood and looked forward to a better life. Another hopeful sign: oil and gas reserves had been discovered off Cambodia’s coast in the Gulf of Thailand. Of course, a lot needs to be done if the country’s 14 million people were to rise out of a low standard of living. Wages are low as I learned from the beautifully crafted handicrafts hawked at Angkor Wat at unbelievably low prices. The average wage for many Cambodians was less than US$1 per day. This meant that the country could continue to have an advantageous position in a number of high labor content industries.

More and more countries were looking for investment opportunities in Cambodia. For example, Korean companies had already built up a strong market position in the IT sector while Chinese companies were also involved in some mega-infrastructure projects.

We left Cambodia knowing that the country was moving rapidly toward a more dynamic and influential position in Southeast Asia. The prospects of investing in companies with exposure to Cambodia were good and we continued to look for such opportunities.


This trip started in Hong Kong when I boarded a Cathay Pacific flight to Ho Chi Minh City. I was surprised to see that the airplane was a large airbus and that, although it was 10 in the evening, the flight was full. I took that as a sign of Vietnam’s thriving tourism industry.


Vietnam has more than 80 million people with 8 million in Saigon (Ho Chi Minh City), 4 million in Hanoi, 1 million in Haiphong, and 1 million in Danang. There are also more than 50 ethnic groups each with its own language and culture. Vietnam was at the time Asia’s second-fastest growing economy. Vietnam had an average GDP growth of 7.4 percent in the past five years. This was better than any other Asian economy except China.

Of course, there were problems particularly related to foreign relations, foreign investment, and trade. Nevertheless, Vietnam was at the time in an export boom, since reaching a trade agreement with the United States, in that the export of textiles, seafood, and furniture had tripled to US$32 billion. The U.S. trade deal cut average tariffs from 40 percent to 4 percent but the United States had imposed antidumping duties on such products as frozen shrimp and catfish. Complaints had also come from the EU, which had imposed a 10 percent duty on Vietnamese shoes while Brazil complained that Vietnam had disrupted the global coffee market. Vietnamese farmers along the Mekong River grew catfish in large floating cages and could produce them at much cheaper prices than the U.S. catfish growers in the southern United States. When we took a boat trip on the Mekong we noticed that there were many catfish farms in the area.

Moreover, foreign investment was booming while the stock market was also finally growing. Vietnam’s main stock exchange was launched in Ho Chi Minh City in July 2000. At the time of our visit, it had more than 100 listed firms and a market capitalization of only US$15 billion. Daily volume was moving up and had reached about US$10 million a day. The government was proceeding with privatization of state-owned enterprises in the areas of banking, telecom, mining, and other sectors. These should be listed in the future.

Corruption, however, was a major problem. The Transportation Ministry official responsible for road construction had embezzled US$7 million to gamble on European soccer matches. Vietnam was ranked as one of Asia’s most corrupt countries just after Indonesia. The literacy rate was high but there were no world-class universities.

Signs of wealth could best be seen on the street with fewer and fewer bicycles and more and more motorcycles. Honda had become a household name and was generic for motorcycles. Prices range from US$400 for cheap Chinese imports to the highest Honda Dream with a price tag of US$3,000. The nightmare will be when those motorcycles are transformed into automobiles. Witness Thailand. When Thai consumers upgraded from motorcycles to automobiles, Bangkok had a major traffic headache. Traffic fatalities in Ho Chi Minh City had already exploded. Typically, motorcycle riders do not wear helmets, despite government efforts to make them do so.

Ho Chi Minh

Ho Chi Minh City was now Saigon according to all the South Vietnamese I met. Of course, people from the capital, Hanoi, won’t agree to the old name but the continued use of Saigon highlighted the divide that still exists between the north and south of this beautiful country.

Semi-Annual Conference

Here I was joined by the rest of my emerging markets team where we were all gathered for our semi-annual conference. We spent 10 days here holding meetings, presentations, and discussions on our investments, strategies, investment methodology, and so forth. We were fortunate enough to have our CEO, Gregory Johnson, join us for a few days and share his wisdom with the team.

Meeting the President

We also visited Vietnam’s President, Nguyen Minh Triet, to discuss the major developments taking place in the country as well as the significant foreign investment we had witnessed recently. President Nguyen was gracious and warm in his greeting. He noted that in the past, relations between Vietnam and the United States were not good but now we were turning over a new leaf so that the past should be forgotten and a new era—one of warm and mutually beneficial trade and investment—could begin.

Ben Tre

On the weekend, we took a trip to Ben Tre, which was a two-hour bus ride from Saigon. Living standards were diverse in Vietnam. Although we saw new modern residential building blocks and houses in the city center and neighboring areas, we also saw some slum areas on the outskirts of the city.

Ben Tre is known for its coconut palm trees and wonderful countryside. Like all the other areas we visited, the people here were friendly. We also had the opportunity to cycle for a couple of hours and take a boat ride on the Mekong River.

Prospering Retail Sector

Back in the city, I also made a trip to the downtown area. As I walked through the packed central market where everything from gym shorts to wristwatches was being sold, a hawker in a watch stand grabbed my arm and looked closely at my Chanel J12 watch and cried: That a real one!

He had a number of fakes in his stand and at one glance he knew the difference. It made me feel good and it should probably make Chanel feel good, too. People know and recognize authenticity and quality in Vietnam and the new Louis Vuitton store in the heart of the downtown area across from the ornate French-built opera house is a sign of the times in Vietnam.


Saigon was a happening city. The largest disco in the city was called America and it was a wild and swinging place with laser strobe lights and hypnotic music you could find in discos all over the world. It was packed with young Vietnamese when we visited at about midnight on a Saturday.

Tourists who signed up for tours of Saigon were invariably taken to the Viet Cong tunnels outside the city as well as a number of other sights in the city designed to remind people of the Vietnam War and its consequences. One of these sites was the War Remnants Museum. The museum opened in 1975, to systematically study, collect, preserve, and display exhibits on war crimes and aftermaths foreign aggressive forces cased for the Vietnamese people. In the museum, you could see exhibitions of the U.S. participation in the war, a collection of photos taken by 134 war reporters killed in the Vietnam War, typical detention camps and prisons, and U.S. weapons used in the war.


All in all, I found this trip to Vietnam to be most interesting. I was impressed with the rapid developments taking place across the country. Construction was evident throughout Saigon and its outskirts as the city continued to expand its capacity.

In fact, we are no strangers to Vietnam. Our experience goes back to 1994, when we launched our Templeton Vietnam Opportunities Fund (TVOF). We raised US$120 million and because the country did not have a stock market back then, we invested in unlisted securities. We made three investments and subsequently sold two of them. In 1998, we converted TVOF into a regional fund to invest in Southeast Asia and subsequently, the fund was merged into one of our global emerging markets fund.

Today, the stock market has been in existence for more than 10 years, but opportunities are still limited due to the small size and low liquidity. Its growth trend, however, is exciting and our Frontier Markets Funds continue to invest in this fast-growing market.

Bashkortostan Republic

On our way to Ufa, the capital of Russia’s Bashkortostan Republic, the plane flew over the vast plains of Kazakhstan with neat rectangular fields of wheat and other crops as far as the eye could see and we entered the 143,000 square kilometers of the republic with 4 million people. It may have seemed strange to have a republic right in the heart of Russia but here it was with its own flag of blue, white, and green, and a national anthem. I suppose it was no different from other countries such as the United States with states having their own flags, and so forth. In fact, Russia has 21 republics (of which Chechnya is one), 8 krais, and 47 oblasts. Something that makes this republic unique is the fact that the predominant religion is Islam and Ufa has been the center of religious education for many Muslims in greater Russia.

We found the area surrounding Ufa city to be a beautiful place with green pastures, azure lakes surrounded by taiga forests, and friendly people located between the Volga River and the Ural Mountains.

Meeting the President

We drove directly from the impressive new airport to the presidential palace on a bluff overlooking the city. We were ushered through large rooms carpeted with oriental rugs to the president’s office. President Murtaza Rakhimov (he had a much longer formal name but we’d run out of pages if I tried to repeat it here) greeted us in his spacious memento-filled office. I

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