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Emerging mkts attractive, but then...

Jan 5, 2010

Emerging markets were the talk of the town in 2009. While the developed world was reeling under recession, their emerging counterparts were still growing at an enviable pace. And what is more, the aura of the emerging markets is expected to continue in 2010 too according to Mark Mobius, executive chairman of Templeton Asset Management. In an interview with the Economic Times, Mobius has opined that emerging economies are forecast to grow approximately four times faster than developed economies. This in turn would be reflected in their stock markets.

Not just that, he believes that investors still tend to discount emerging markets as too risky. As a result, valuations in emerging markets are still lower than those of Europe and the US making the former attractive. Further, interest rates in the developed world are at one of their lowest. Therefore, most investors are looking for a better return on their investment. This means that they are putting their money to work in equities in emerging markets.

The interesting thing is what Mobius had to say on valuations of these emerging markets. Already there has been a spectacular rally, most notably in the stockmarkets of Brazil, Russia, India and China. As a result, concerns have already started emanating that valuations here are beginning to look frothy. Valuations at the end of 2009 were certainly not as cheap as they were at the end of 2008. At the same time, Mobius believes that current valuations are around the middle of their historical 10-year range. Therefore, he says, there are opportunities in terms of solid companies that can survive even in a downturn.

We believe that emerging markets have tremendous growth potential from a long term perspective. At the same time for the medium term, valuations do look a tad bit stretched. Hence, investors will have to be all the choosier while picking their stocks. They will have to make sure that they do not pay a very high price even for a strong company.

Big Pharma in an acquisition mode
Big Pharma is at it again! Yes, we are talking about big ticket acquisitions. Hardly had the ink dried on the Pfizer-Wyeth deal, the Swiss drugmaker Novartis has now gone ahead and acquired the remaining stake in Alcon. The latter is the world's largest eye-care company and Novartis has acquired the same for US$ 39.3 bn. The Pfizer-Wyeth deal had taken place at a time when the financial crisis was at its peak. At that time there was growing talk of splitting 'big' companies hit hard by the crisis to make them more transparent and manageable. But that deal and the current Novartis one only highlights that Big Pharma is more concerned about a problem which it considers to be the bigger one - patent expiries of their blockbuster drugs.

Many of the big pharma companies have not really been able to replenish their pipelines at the same pace as in the 90s. Plus, there has been an increasing preference for generics. This has put added pressure on their sales and profits. So on one hand Big Pharma is foraying into generics . And on the other, it is acquiring R&D based companies with a niche focus to fill the product portfolio.


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