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Ira Chaplain
Mark Mobius is the head of emerging markets for Templeton Asset Management

The Case for Earnings

Believe in the tech revolution, not Internet stocks

When Templeton Asset Management's emerging markets guru Mark Mobius talks, the world listens. Mobius manages over $5 billion in emerging market funds, and when he predicted two weeks ago that the prices of some overvalued technology stocks would fall from 50% to 80%, his statements were broadcast and printed around the world. And, as you remember, a global correction followed soon after, helped in part by Judge Thomas Penfield Jackson's guilty ruling in the Microsoft antitrust case. Though Mobius surfs the net, uses e-mail and carries an array of cellular devices as he travels the globe on his private jet, he has been criticized for having too many old-economy stocks in his portfolio, which has lagged most of the high-performance tech funds. Now he seems to be hitting back. Last week he and Asiaweek's Assif Shameen had this e-mail exchange.

After the sharp falls of the past week do you believe technology stocks need to corrrect even more?
It's true that a number of tech stocks have corrected recently to levels where they may be getting attractive. However, there are many other companies whose future is bleak and these, of course, would not be attractive at any price.

Are we entering into a long bear market globally or is the recent downturn just a correction in tech stock valuations?
Well, no one really knows. What we do know is that in emerging markets bear markets normally last about one or two years and in developed markets they normally last three or four years. Bull markets normally last longer -- in emerging markets between four to six years and in developed markets nine to 12 years. We would like to see the markets differentiate between overvalued tech stocks and other non-tech stocks with good value. But when panic sets in and there is leveraging, then there could be a wholesale dumping of everything. This is not evident yet this year and I am not making a prediction regarding this.

The proponents of tech stocks say the Internet is revolutionizing the way we live and work and that we are entering a "new paradigm." You don't seem to buy the revolution story or the new paradigm story.

No, that's not true. I do buy the Internet revolution wholeheartedly. However, we must differentiate between the Internet revolution and the Internet stocks -- most of which have been hyped to levels which are unrealistic. When the automobile was invented there were literally hundreds of automobile companies that started manufacturing cars. Most of then did not survive. Now when people talk about the new paradigm of valuing stocks, some say you don't need to think about earnings. I don't buy the idea that you don't need to talk about earnings when evaluating these high-growth Internet stocks. Earnings always count in the market -- eventually.

Are there any technology or Internet stocks you would buy at this moment?

Yes, of course. We are currently buying a number of technology stocks which we believe are fairly valued.

Some of your critics say you dismissed New Economy and Internet stocks purely because you missed the opportunity to buy technology stocks when they were cheap. Would you explain why you have had such a low exposure to tech shares over the past few years?
The critics seem to imply that I caused the recent downturn in the market especially in tech stocks. This is clearly nonsense. The market has a life of its own and is not going to listen to Mark Mobius before deciding where it is going to go. In addition, I want to make it clear that I don't normally criticize the New Economy or tech stocks in general. In fact, we have purchased technology and Internet stocks and still have a number of them in our portfolios. Telecommunications stocks, for example, constitute the largest sector weightings in our portfolios. Therefore, we have not had "low" exposure in tech stocks as some of our critics imply.

Should a global fund manager like yourself be under-exposed to a sector as important as the Internet ?
From our point of view, we should be under-exposed in any sector which is overvalued. Just because everyone else is buying an overvalued stock does not mean we should do the same. The herd instinct of fund managers does not serve investors very well.

Where are the values in global emerging markets right now?
We are finding good values in Mexico, Brazil and in South African equities. The most attractive sectors in emerging markets in our view are telecommunications and financial services.

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