#14 - JRL 7221
FUND VIEW - Mobius says Russia pricey, sells
LONDON, June 13 (Reuters) - Russian equities, which have risen more than 33 percent this year in dollar terms, more than double the growth in emerging stock markets as a whole, have become too expensive and Templeton said it is selling.
"We are actually decreasing," Mark Mobius, the head of Templeton's emerging markets business, which has $7.6 billion invested in developing countries.
According to the industry benchmark S&P/IFC Composite Index, Russian shares are up 33.6 percent in dollar terms this year compared with 14.2 percent on the Composite index as a whole.
Russian shares have powered ahead as the equity risk premium has fallen on the back of soaring debt prices and the first evidence of major foreign direct investment with a multi-billion dollar acquisition by BP and the merger of two huge Russian oil companies.
Shortage of stock and corporate governance remain big issues for Templeton in Russia, as outside the big oil and telecoms counters, there is little to buy.
"Even if you want to go to the regions, the liquidity is not there," Mobius told a press briefing.
Overall, Mobius believes it is time for emerging equities to start outperforming emerging market debt, which has been on a bull run since the end of the 1998 Russian financial crisis.
The risk premium for holding emerging market debt rather than safe-haven U.S. Treasuries has fallen by two-thirds from over 1,500 basis points (bp) post-Russia to 528 bp now and the emerging debt market has returned 23 percent year to date.
"We have already reached the end of the outperformance emerging debt has had, all you need now is an uptick in interest rates and there will be spread widening," Mobius said.
"Equities have underperformed debt but we are beginning to see a change," he said.
Templeton has seen more inquiries for mandates and greater money flows into its emerging equities products, mainly from the U.S., but others are following.
"For the first time in years we have been asked to do a roadshow by our European sales people," he said.
His top picks are oil and gas, the consumer sector and raw materials.