Mobius Says Pakistan Not Ready to Become Emerging Market

(Bloomberg) -- Franklin Templeton Investments will continue to treat Pakistan as a frontier market even after it enters MSCI Inc.’s emerging-market indexes, Mark Mobius said, as he announced the reopening of Templeton’s frontier fund to new investments after four years.

The executive chairman of Templeton Emerging Markets Group said the money manager looks at corporate governance and transparency before considering a nation as an emerging market, while index providers may emphasize market size and volume of stock trading in their upgrade plans.

“We don’t think Pakistan is ready to graduate to an emerging market yet,” Mobius said. “If the market cap increases, trading turnover and number of shares increase, the index people may upgrade. But it can’t be said that companies have really improved their governance or improved their behavior generally.”

Irrespective of the classification, Pakistan is one of the equity markets Templeton is bullish on for its renewed frontier-market strategy, Mobius said. The money manager, which stopped accepting new investments for its frontier-markets fund in June 2013, will start taking in deposits from May 31, he said.

Pakistan Stock Exchange Managing Director Nadeem Naqvi said he disagreed with Mobius.

“I will only say if you look at KSE100 company balance sheets, the kind of disclosure we have, the regulatory environment in code of corporate governance, which is of international standards -- they are all at par,” Naqvi said in an interview with Bloomberg Television on Tuesday.

Mattias Martinsson, the chief investment officer at Tundra Fonder AB, which is the only global fund to have an office in Pakistan, also said he was comfortable with corporate transparency in the South Asian nation.
 
“On the part of financial information disclosure Pakistan is not behind, rather the opposite,” Martinsson said.

The Templeton Frontier Markets Fund has gained 11 percent this year, similar to the gains in the MSCI Frontier Markets Index. The investment team decided to reopen the fund as the relative return for Templeton’s strategy improved from previous years and valuations in frontier markets are trailing those of developed and emerging nations, Senior Vice President Carlos Hardenberg said.

Vietnam, Peru, Kenya, Bangladesh and Saudi Arabia are the other markets where the $1 billion fund sees “pockets of potential value,” he said.

--With assistance from Alex Nicholson and Robert Brand

To contact the reporters on this story: Srinivasan Sivabalan in London at ssivabalan@bloomberg.net, Faseeh Mangi in Karachi at fmangi@bloomberg.net.

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Chris Kay, Ravil Shirodkar