Mark Mobius, who leads the emerging markets division of Franklin Templeton, spoke via Skype with Rens de Jong of Fund Event, The Netherlands. (See the video interview with Mark Mobius )
"The euro is not the problem, because it has nothing to do with the debt in some countries of the monetary union. The problem is the countries themselves and the people who have bought debt of these countries. Those people are wrong and need to accept their mistakes. "
"Because the euro is a great innovation, not only Europe but the whole world benefits from it."
Mobius thinks that in the next few weeks things will change in Europe, because everyone in charge was on vacation in August.
He has high expectations of Germany and Chancellor Merkel, which has now made a clean sweep. This week the German Minister of Finance hinted at a withdrawal of Greece from the eurozone.
Mobius expects a haircut coming, which means that the debt is restructured and bond investors will only get back a portion of their debt.
The emerging markets specialist thinks that Europe is better able to tackle the debt problems than the United States, because Republicans and Democrats are not really willing to tackle the issues the U.S. has.
"There are great interests to continue on this path," says Mobius. He is referring to people in the military, healthcare and education.
The interconnectedness between Europe and the U.S. is large, but with China is less, because the western countries are reluctant to give China the chance to buy companies. Yet this is an important goal for China, says Mobius. By buying up companies and to strengthen China's economic foundation.
Mobius believes that China is really developing into a consumer economy. Companies are asked friendly to increase the salaries of employees by 10 percent . As a result, Chinese domestic consumption becomes more important.
According to Mobius a positive development for investors who can respond to consumer trends.
I selected 5 consumer related stocks that have a BUY recommendation and can profit from a higher consumption in China (South East Asia).
Second-quarter sales rose 5% to EUR 3.06bln, in-line with consensus. Net income rose 11% to EUR 140mln, above market expectation of EUR 137.3mln.
Full-year sales will gain about 10% on a currency-neutral basis. Previously the company had targeted a high single-digit rate. Adidas expects EPS to rise at a rate approaching 15%, while previously forecasted an EPS gain of 10% to 15%.
Sourcing costs will increase significantly compared to the prior year as a result of rising raw material costs and capacity constraints. However, Adidas high exposure to fast-growing Emerging Markets (China Q2 sales +31% / +41% currency neutral), the further expansion of Retail as well as continued momentum at all key brands lead Adidas to increase its guidance (Q2: Gross margins by 0.2 percentage point). This is pretty remarkable, especially in-light of this year’s lack of sales related to the 2010 FIFA World Cup.
Adidas is benefiting from higher demand at its Reebok unit, which is capitalizing on its growth strategy in the men’s training and women’s fitness categories. The market for Reebok toning shoes is stabilizing and toning shoes will continue to be successful, according to the company. Adidas is also expanding in China, Russia and North America, where it plans to generate about half of its targeted 50% sales increase by 2015. Further, the company plans to continue raising prices and streamlining production to increase profitability. At a historical in-line valuation (P/E for 2012e: 12.3x), there is enough upside potential.
I have written myself some articles about Apple but I would like to refer to an article called "Is The Market Pricing Apple Correctly" by Stephen Rosenman.
Coca Cola (KO)
Most western companies in Consumer Staples sector have been complaining about the tough operating environment in their respective domestic markets. The reasons are evident: Declining consumer confidence, high unemployment rates, struggling housing markets, government’s austerity measures etc. The situation for Coca-Cola seems different. The company still enjoys strong momentum in both the U.S. and Western Europe. Especially in the U.S., Coca-Cola gained 140 basis points (bps) market share this year, with gains across all major product segments such as carbonated soft drinks, sport drinks, teas, bottled water and refrigerated juices.
Development in emerging markets makes things even better. Growth dynamics are firmly intact, driven by major countries such as China, India, Mexico and Russia. The newly announced investment plan in China – USD 4 bln in 2012-2014 (on top of the USD 3 bln in 2009-2011) – reflects the company confidence in China’s consumption potential.
In terms of cash return, the stock carries a dividend yield of 2.7% currently, not very high but clearly above the 10-year U.S. treasury yield. Moreover Coca-Cola announced to buy back own shares for USD 2.5 bln by year end.
Fiscal third-quarter revenues advanced 12% to USD 2.93bln, ahead of markets expectation of USD 2.84bln. In the period ended 3 July, net income climbed 34% to USD 279.1mln, or USD 0.36 cents a share, above consensus forecasts of USD 0.34 a share.
Starbucks has faced higher ingredient costs during the past year and higher coffee costs will reduce fiscal 2012 profit by USD 0.21 a share. Nevertheless, Starbucks is lifting its clean full year fiscal 2011 earnings to be as much as USD 1.51 a share, up from a previous forecast of as much as USD 1.48 (consensus USD 1.50).
These results confirm and show that the company is on track for future delivery. Starbucks is entering the at-home coffee market with single-serve beverages. This year, the company began selling Via instant-coffee packets in China and partnered with Green Mountain Coffee (GMCR) to make Starbucks brand capsules for Green Mountain’s Keurig brewer (K-Cups). The Via brand should be becoming a one billion business some year in the future. Foods like desserts and "Bistro Boxes" also are working well.
China’s growing middle class is offering a longer term opportunity for Starbucks. Hence, the company is accelerating store opening there and will open 150 new stores in fiscal 2012 (out total 800 net new stores globally). Longer-term Starbucks plans to more than triple its store count in mainland China to 1,500 locations by 2015.
Drivers include a full contribution from K-Cups (Green Mountain), likely further acceleration in store growth, and less commodity drag. Valuation remains undemanding (P/E for fiscal 2012e: 20.5x vs. historical average of 35x).
Yum! Brands (YUM)
YUM! Brands portfolio of restaurants include the popular Taco Bell, KFC and Pizza Hut chains. The company's China division is soaring as the country continues to shift from an export-based economy to a domestic consumption economy.
China is the company's largest market now, comprising 42% of total revenue. In the second quarter, sales in China surged 33% year-over-year as same-store jumped an incredible 17%. The Chinese apparently love Colonel Sander's chicken, and Yum! has no plans of slowing expansion there.