The Trend of Investing Mindset

The ability to move from market to market assumes that investments and their environments are disconnected, that market movements are not strongly correlated. But in these days of global banking and instant communication, that condition is less likely. Markets and investments in those markets may be increasingly synchronized.
In the past two decades, as emerging market investment grew dramatically, globalization permeated our financial systems. Now there are some clues of a cyclical return to local and national interests. If so, investments by foreigners in any market may be treated harshly.

For example, some now argue that the rapid expansion of emerging stock markets in recent years is likely to hinder rather than assist faster industrialization. According to this view, while stock markets may be potent symbols of capitalism, paradoxically, capitalism often flourishes better without their dominance. The inherent volatility and arbitrariness of stock market pricing in developing countries make it a poor guide to efficient investment allocation. Portfolio capital inflows from overseas lead to interactions between two inherently unstable markets: the stock and currency markets. Such interactions in the wake of unfavorable economic shocks may exacerbate macroeconomic instability and reduce long-term growth.

Emerging market investment depends on steadily growing liquidity to be able to pay back investors at higher levels in a foreign currency. This works when the market is going up and money is coming in. But in the reverse, liquidity is tight; the ability to pay foreign creditors is lacking and confidence plummets.

Thus, emerging market investing may be a long-term cyclical phenomenon and not a steady, one-way path to riches. Certainly, the emerging market investment phase of more than the last decade is over. Not only has capital been destroyed and confidence shattered, but the idea of capital flows for superior return from developed countries to needy, developing ones is gone. The latter do not want the funds on anything like the terms that would be required.

A common theme of this book is that investment success is most often observed where the market requirements and investor personality are one. The old shibboleth that "investors don't pick markets, markets pick investors" is more true in emerging markets than elsewhere. And Mark Mobius's style, hard work and tough mind are exactly what was needed in emerging markets. These markets may undergo a change. Will he?