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World funds yawn at Y2K
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July 15, 1999: 5:26 p.m. ET
Managers of emerging-markets, Europe funds don't see Q3 problems
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - Forgive fund manager Mark Mobius for sounding a little blasé about the Y2K issue in emerging markets.
After all, blackouts and other calamities are almost routine in developing countries -- and many companies don't even rely on computers, said Mobius, manager of the Templeton Developing Markets Fund.
"The Y2K problem frankly is going to be seen in the developed countries," Mobius said from Singapore this week. "The emerging markets are going to be in much better shape than the U.S., Japan or the European countries."
Many economists and fund managers had predicted a third-quarter downturn in emerging markets as investor sentiment chills amid worries about Y2K preparations. Market watchers forecast widespread trouble in early 2000 as unprepared countries grappled with the new millennium.
So far, the crystal ball has been wrong.
"I'm surprised the market has been so remarkably unconcerned this summer," said David Hale, global chief economist for the Zurich Group.
In March, when Hale spoke before a group of closed-end fund managers at a conference in New York, he sounded cautious.
"Back when I gave that speech in March, some of my hedge fund friends thought it would be a big issue by the third quarter," Hale said. "But here we are, it's July, and it just hasn't seemed to register."
David Liu, manager of the Strong International Stock Fund, said he has ignored the concerns about Y2K because he think they are overblown. The fund invests in Europe as well as in Mexico, Hong Kong, Greece and Singapore.
"I strongly believe (the issue) is overblown," Liu said. There may be a few disruptions in the world, mostly in emerging markets…but mainly minor disruptions. Nothing on the level of a calamity."
Some remain cautious
But there are still rumblings of concern across Wall Street for the months ahead.
Ed Yardeni, chief economist and global investment strategist with Deutsche Bank Securities, said in a research report on his Web site that as of May he still believes there is a 70 percent chance of a severe global recession. The recession could begin in the fourth quarter, he said.
Yardeni, who was in Europe and unavailable for comment this week, also said global markets may suffer more because of Y2K than they did during the financial crisis of 1997-98.
"If Y2K is a disaster it will be a global one, not a local one," Yardeni wrote.
And a new survey by Merrill Lynch predicts a range of problems with the public sector and small businesses in Asia. The survey said utilities such as National Power Corp. (Napacor) in the Philippines, Indonesia's Perusahaan Listrik Negara and Thailand's Electricity Generating Authority may suffer.
While Hong Kong and Singapore are ahead of the game with Y2K preparations, there may be liquidity problems in other markets as investors start to get worried, the Merrill Lynch survey found. Hong Kong and Singapore may get a boost as a result, while investing dollars may dry up in China, India and Indonesia.
A silver lining?
At the same time, there will be good buying opportunities out of those problems, the survey said.
"Strong brand names, monopoly market structures and other forms of competitive advantage should survive temporary Y2K dislocations in the long term," the survey said.
Mobius, of Templeton Developing Markets Fund, said he has sold holdings in some small companies that he felt were not ready for Y2K. But generally he isn't changing his investing strategies. (He declined to name any companies he sold).
The Developing Markets Fund, with $2.56 billion in assets, is up 36.70 percent year to date as of Wednesday, Morningstar said. Mobius also manages the Templeton Emerging Markets Fund (EMF), a closed-end fund, which is up 43.75 percent year to date as of Thursday.
Since emerging markets often have blackouts or other problems, they're better prepared to handle those problems, Mobius said. Because their infrastructure isn't as good, they tend to distrust computers, he said.
Mobius said he's confident companies like Cheung Kong in Hong Kong, which has many subsidiaries -- including a cell-phone business, retailing and real estate -- will do fine.
"There is an example of a company that will not be impacted by a Y2K problem," Mobius said. "They are so well diversified that problems in one area won't impact other areas."
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