ROGER HIRST: Mark, a very, very warm welcome to Real Vision MARK MOBIUS: Thank you ROGER HIRST: I think this is your first time, but we’ve been hunting you for quite a while I think You’ve had this amazing career, 40 years in emerging markets 30 years at Franklin Templeton, Chief Executive of the Emerging Markets Group You’ve written more books than most authors would do in their time You’ve been on the board of large emerging market corporates You’ve been on committees of things like the World Bank Governance Forum Here you are, if you don’t mind me saying it in your ninth decade and you decided to start it all again with your own company Starting afresh this year with your name above the door with all the risks that take Why now, and also, why in London? MARK MOBIUS: Well, mainly because the industry has been changing Since we started in 1987, the whole industry has changed from the truly active management era to a more passive management In fact, just recently, the amount of money in passive funds, ETFs and index funds has now surpassed that of active funds I thought, gee, I’m supposed to be an active manager, but yet the industry is changing When you’re in a big organization, there’s a tendency for us to go with the flow If you want assets under management, you have to do more passive funds I thought maybe what we should do is spin off and start something that’s truly active because as you know, even the so-called active managers, at least in the past, and even now, follow the index Watching the index all the time I wanted to get away from that completely to something that was truly active and that’s why we wanted to start something in the active area Then also, we want to do something that was related to in the environment, social and governance, ESG era, because a lot of people are interested in that, and investors more and more want emphasis on ESG Looking at this, we thought, well, wait a minute, if you want to affect the environment and if you want to do something about the social situation, you got to have good governance to begin with That’s what we’re focusing on, we’re focusing on governance We’re going to companies that are willing to engage with us In the past, we used to have big legal battles and fights and so forth, we found out that doesn’t work in the long run, the best way is to get engaged with the management of the companies and get them to change and improve their governance That’s what we’re doing ROGER HIRST: It sounds like you’re coming into this, you’re going active, and you’ve also got a clear direction with the active but in a world which is going to only become increasingly difficult for the active manager, because let’s pretend we went to a world, which hopefully will never happen, where it’s 100% passive, then the whole rubric change where value doesn’t matter It’s all about volatility, or dividends or things like that How is the strategy, how is your active strategy going to be able to deal with this environment, where it’s just going to become harder and harder as active funds lose funds, always selling, passive funds are always buying and that active rule gets effectively overrun? MARK MOBIUS: Well, the interesting thing in talking to various institutions, family offices, in particular, people with billions of dollars, they’ve been telling us, gee, we need more active because 50%, 60%, 70% of our portfolio is passive and we realized it’s a trap, because basically, you have to follow the crowd An index fund is basically based on the crowd, what everybody else is doing, the biggest stock, the most popular stock is the stock that’s going to have the biggest weighting in the index, and you’ve got to follow that A lot of people realize it’s dangerous, because the crowd may not be right In fact, we know the crowd often is wrong They’re saying, “Okay, maybe we should have an allocation to active, truly active.” That’s what we’re going after I think there’s still going to be room for people like us ROGER HIRST: People should think of active management in some ways as effective form of optionality that when this whole edifice of passive investing, I don’t say comes crashing down, but when it has its dark days, then the active managing should hopefully give everybody some cushion against that potential MARK MOBIUS: That’s right That’s exactly right In fact, that’s another reason why a lot of investors are saying, “In order to reduce volatility,” because if you are all moving in the same direction, your volatility is going to be very high, “In order to reduce volatility, let’s go to something that is different, that’s going to behave differently,” and that’s the active management ROGER HIRST: With the ESG angle, there’s always this cynicism about well, yes, it’s do good Actually, you should be looking for the best returns

It’s great to be moral but also, it’s good to basically make sure my pension works Is that still a valid pushback, or do you think that or can you see that the ESG investing is providing returns which can outperform? MARK MOBIUS: Well, that’s the beauty of this orientation is that the studies that I’ve done so far show that high ESG rated stocks do better than low ESG rated stocks More importantly, and where I’m emphasizing is, is that we’re not necessarily going after companies that already have a high ESG rating, but companies that don’t yet have that, but will improve, because their performance, we believe, will be even better You get a better upside That’s a very interesting thing We pointed out, we just did a book called, “Invest for Good.” In that book, we show that if you’re taking a long-term view, and if you are investing in good ESG companies, your performance will be better ROGER HIRST: With the ESG investing where you’re looking for those that have maybe a low score, does that mean that effectively what you’re doing with the capitals, you’re looking for companies where they will benefit from the capital that comes in, and therefore they are going to, through your investments, they’re going to move up the scale, because there’s always the cynicism around ESG that ESG is got a moral thing but it hasn’t got the elements of necessary the best profitability? MARK MOBIUS: Exactly ROGER HIRST: In your words, you actually see that ESG is actually a better way of investing than simply just saying, “Well, it’s nice and warm We feel good about ourselves.” It actually gives better returns MARK MOBIUS: It’s interesting, because when we started in 1987, ESG was not around The concept of the environmental, social, governance issues were not really discussed, but inadvertently, we were paying attention to those issues, because it was risk control At the end of the day, let’s say you’re in a mining company The mining company has the risk of telling its dam being broken and flooding the whole environment, and they’re being fined by the– and of course, being hit by the local government in what they did That’s a risk and that’s the environment basically Same thing on the social side If the company has bad relationships with the community and with their workers, they’re not going to do very well, it’s a risk The governance, of course, same thing If you don’t have good show of the relations, chances are that people will not want to invest in your company These are risks that we always were looking at but for the first time, they’re being more systematically governed If you look at the United Nations Lyst, the sustainability Lyst, basically, it’s a list of risks that you have to try to control ROGER HIRST: How does this ensure that capital goes into the right areas For instance, I think in the diversified energy sectors, there’s quite a high hurdle rate of return on capital that investment is going to require from the dirtiest ends of the energy market versus the cleanest ends, or not just the dirtiest end, but needs the most capital investment to turn them from being let’s say, dirty energy, dirty coal into much more cleaner varieties through technologies, is the danger that in some ways, like passive versus active, ESG could starve areas that desperately need the capital to move in I know you mentioned that you’re looking for those that can move up, but how do you ensure that those that need it, get it even if they score badly? MARK MOBIUS: That’s a very, very good point, because you’re absolutely right These ESG funds now, or ESG companies, highly rated ESG companies, big investors will say, “Look, I will just invest in those companies or in those funds, those index funds.” You’re right, the other companies that need the capital to improve are not getting it That’s why we believe that’s where the emphasis should be, which go after those companies to help them improve Now, some industries, of course, are really in a very difficult position If you look at, for example, coal burning power companies, it’s really an issue I personally believe that these could be cleaned up because they’re emitting carbon dioxide If the carbon dioxide could be captured and used to grow plants, you could have a really good situation Unfortunately, the cost and the technology is not up to par yet and those costs is quite high ROGER HIRST: You’ve done the ESG and the ESG has been something you’ve been focused on for actually quite a long time, but the other thing that obviously people think about you for is the emerging market side, which is ESG in emerging markets How do you see emerging markets right here, because there’s these been this big structural shift, almost a megatrend through your career where you probably were in that globalization trend, which may have now peaked, and we’re now moving toward regionalization How do you see that these big changes coming through now versus maybe when you started in this 40 years ago? MARK MOBIUS: It’s really interesting to see the progress When we started in 1987– before that, I was at MIT, I sat in the economic development In those days, the economic development theory was based on, well, maybe if we build a steel plan, the country will grow, or maybe let’s build a railroad and the country will grow, because they couldn’t explain why countries were not growing, because you had the so-called Third World, the underdeveloped and so forth Finally, the World Bank, IFC and these multilateral institutions began to realize that if you want a country to grow, you got to have a market economy That means you got to dispense with socialism, communism, and dictatorships that control

the economy, you got to have a market economy That’s where we started In 1987, when we had the very first emerging markets funds listed on the New York Stock Exchange, we had only eight markets in which to invest That was it, Hong Kong, Philippines, Thailand, Malaysia, Singapore, and Mexico That was it There were no other markets we can enter, because either they didn’t have stock exchanges, they were a socialist country, everything was owned by the government, et cetera, et cetera Now, we’re at 70 countries around the world that have privatized, have opened up markets and established capital markets The realization that you need a market economy to allocate resources has now really sunk in Unfortunately, though, there are now forces in the developed as well as the emerging world, which is saying, “No, the government has to take back all of this.” Here in the UK as you know, Jeremy Corbyn says, “Look, in order to give cheap medicines to people, we got to have a government drug company.” Well, that’s going in the opposite direction from a market economy That, I would say, we’re at a very, very important juncture in the history of development around the world If we back away from the market economy concept, I’m afraid things are going to go backwards ROGER HIRST: With market economies, I guess, the famous one, the big one, the one that people make fortunes on You went to China very, very early in this whole process, most people really think of China post-WTO in the early 2000s but you were there a decade earlier before What is it in an emerging market, and maybe within China at that time that made you sit up and go, we got to get in there and then follow it through? MARK MOBIUS: Well, first of all, the incredible enterprising spirit of the Chinese people I was based in Hong Kong at the time and Hong Kong was a model of a market economy In fact, The Economist were always visiting Hong Kong to see how it worked, because it really epitomize what a market economy does and how successful it can be, despite the fact that it was a band rock When the British troops came there, there was nothing, no resources That’s what really excited me I thought, well, if that’s happening in Hong Kong, it could be happening in China Then Deng Xiaoping came out and said, “Look, I don’t care if the cat is black or white as long as it catches mice.” That was a turning point, because he said we’ve got to now adopt the market economy concepts Because what they were doing, the Chinese were saying, “Look, we want to overtake America.” Mao made this famous statement about we’re going to run a 100-year marathon and we’ll overtake America How do we overtake America? What makes America safe? What make America strong? It’s the market economy That’s really, and that’s what they adopted in China They adopted the market economy while separating the political structure from the market That’s the model that they used ROGER HIRST: Today, China’s on everybody’s lips, it’s the key and Hong Kong Most people probably say that China’s drifting back away from the open towards the socialist How do you see China today? How do you see it developing? Because it pushes people to two extremes, it’s either very, very bad, or it’s very, very good and that middle ground is not really populated as much as it should be How do you see China today evolving? Then how do you see Hong Kong within that because Hong Kong, is that something which is going to reach an endgame soon? MARK MOBIUS: Really, the big battle now is between this concept of a free market economy with free political structures and the Chinese model, which is a free market economy, but with a closed political structure This is the real battle that’s being– ideological battle, I would say, that’s being fought I think there are many people in China, although they probably wouldn’t want to admit it, realized that in order to get that next step in progress, they’re going to have to free up the political system The real battle is really an ideological one, where you have Hong Kong, where you have people who say, “Look, we want a free political system where the people decide what government they want.” In China, it says, “Look, we will give you freedom on the economic side, but not on the political It’s necessary to have a one-party state that controls everything.” Many people will point to Singapore as an example, where they say, “Look at Singapore, it’s basically one-party There is opposition, but one-party controls It’s very successful and they’re doing very well.” This, the ideological battle that we’re seeing around the world By the way, many companies and countries will look at Singapore as the model for the future Of course, the American model is completely different I think the other aspect that we’re witnessing is the fact that China now getting so strong economically, militarily and technologically will gradually become a hegemon and that is a direct challenge to the US, which considers itself the hegemon for the world, at least, up to now, that’s been the theory

That’s what they’ve been thinking I think there’s a danger of real, real problem This trade dispute between China and the US is one item in a long list of items that these two countries have to work out ROGER HIRST: With China itself, is the economy there– how stable is the economy? Because people talk about China having far too many excesses, particularly in debt, SOEs in the banking sector, and that these are unsustainable, but they’ve been unsustainable for quite some time now In fact, if anything, maybe the big debate globally is, which is the most unsustainable model, the US, good, bad, democracy, whichever one you call it, or good, bad, dictatorship The economic models between them and both, have both got their problems, people are looking for China to destabilize because of the successes, how do you see the Chinese economy? MARK MOBIUS: I don’t see any big issue with the Chinese economy in terms of stability, simply because all levers are in the hands of the government The government controls the major banks, not like in the US, the Citi banks, First National, all these other big banks in America are private but basically, they are supported by the government indirectly, but at the end of the day, they are private, whereas in China, it’s all government controlled The major industries are government controlled The currency, of course, is controlled under very, very tight control If you have this power in the hands of the government, they can ensure there’s no major problem Now, of course, there’ll be minor issues, certain companies will go bankrupt, there’ll be runs on the bank, some of the private banks and so forth and so on but at the end of the day, the government will be able to control this situation ROGER HIRST: Then Hong Kong within that, Hong Kong is being seen as the– not the antithesis, but obviously, the pro-democracy, the whole fighting for the westernized ideals Is Hong Kong so important to China as an economic conduit that China will actually step back from the nasty endgame, or is there sufficient violence on the streets for China to go actually, you know what, we’re going to go in? Because wouldn’t that have a massive negative shock economically for China which uses Hong Kong as its capital conduit? MARK MOBIUS: I think the Chinese have to be very cautious in moving in militarily into Hong Kong For a number of reasons One, the US Congress– it’s one thing the Democrats and Republicans agree on, they want to ensure that Hong Kong is not taken over by China at this stage, at least, until the years during the term of the treaty are running out I think that’s one thing the Chinese have to look at very carefully, because it could result in a very severe reaction The other thing they have to be concerned about is Taiwan because if they want to embrace Taiwan, and get a favorable reading from the Taiwan public, they have to seem to have treated Hong Kong very nicely This is another very important aspect from the Chinese point of view Look, if things get completely out of control, that could happen The Chinese could move in If they do in an aggressive way, it could result in an international incident It could be quite, quite critical ROGER HIRST: Chinese liquidity or Chinese credits has been one of those key cornerstones of global support, particularly since 2008 It seems that they’ve shifted the focus, it seems that they’ve manufactured a slowdown, whereby you can see it in what we’re seeing in Korea, what we’re seeing in Germany Do you think that China is in control of that slow down? If so, how long will they allow this grinding slowdown to continue? Because obviously, the externalities of that have been quite severe for some countries MARK MOBIUS: Well, yes, to some degree, they’re in control in the sense that they realize that there were a lot of excess liquidity in the system, and a lot of very bad investments being made They began to crack down, telling the banks, “Look, you’ve got to stop issuing these trusts,” the so-called trust that they were issuing They said they’re not responsible for it, but actually, people would line up in front of the bank and want their money back The government stepped in and say, “Look, you got to cut down or at least reduce that.” They also started reducing some of the projects, which some of the provinces were involved in I think, yeah, you could say that, in some ways, they programmed a slowdown, but they can’t have too much of a slowdown Because unemployment is a key If you have high unemployment in China, that means political instability, which is something that they are really concerned about What I think they’ve been doing is saying, “Okay, the domestic economy, we’ve got to

slow down in order to stop the excesses, but we’re going to move out We’re going to do Belt and Road, which will enable us to export some of our heavy machinery, our technology, et cetera, et cetera.” If you go around the world, in Latin America, in Africa, or in other parts of the world, you’ll find Chinese companies are very active in doing infrastructure Well, Huawei is all over If you go to countries around the world, Huawei switch gear for telecoms is very prevalent They’ve been computing many, many areas where they think they can excel ROGER HIRST: China’s Huawei is very clear in terms of its relationships with places like Sri Lanka, ports in Sri Lanka, ports in Pakistan The soft power, the corporates, these large corporates, do you think people are right to be concerned about the spread of the likes of Huawei on the global stage, and particularly with these mega corporations? Let’s focus on China first, we can come to the US after, these mega corporations from China, their impact and the way that they’re getting into the backdoor into a lot of countries? Should we be concerned about that? MARK MOBIUS: Yeah, individual countries got to be concerned, because a lot of times, going to a country, an African country, for example, Sri Lanka, and say, “Look, we’re going to need a big port and we’ll lend you the money to build it.” Then when they can’t pay back, they say, “Okay, we’ll take over the port.” This is a sovereign issue that is concerning to many, many countries now increasingly, but on the other side, you might if you travel to Africa, or some of these countries, they’ve done incredible infrastructure work Now, they imported Chinese workers to come and do it They imported Chinese equipment, and so forth and so on, but the bottom line is the infrastructure was built in record time and it’s beneficial to the countries This is the big conundrum that you see in many of these countries On the one side, they say, “Look, we don’t want to be controlled by the Chinese,” but the other side, they say, “We love this infrastructure, this is what we need, and we can’t do it ourselves.” Yes, there is a danger but it just depends on how much you can control at the end of the day, whether you can limit the imposition from the political viewpoint but it’s going to be very, very difficult going forward ROGER HIRST: With China, they’re obviously getting a very large global footprint, whether it be the hard power of them building ports in countries like Sri Lanka, they also have the soft power of the corporates, which was actually can run by the government like Huawei, you mentioned before Should countries be concerned about both the soft and hard power into their countries? Is it right for the US and Europe to be worried about these things as well? MARK MOBIUS: Oh, no question It’s already had a big impact It was interesting I was in Sweden recently and I was talking to someone from Ericsson They said, “In 2005, Huawei moved into this city where we have our head office, and built another office right next to us and started hiring all our people.” Technology transfer, that’s what it’s all about A lot of this technology has been transferred, either inadvertently, legally, illegally, any way you can look at and that has been a real big problem Market share has been lost I was in Argentina, talking to a telecoms company and they said, “We’re increasing our capital expenditure We’re doing new switch gear.” I said, “But your balance sheet shows that you’re reducing.” They said, “Yeah, because Huawei came in and offered us half the price of Ericsson.” I said, “But how about service?” They said, ” There are 100 Chinese engineers next door.” This is what’s happening The power of these companies is incredible, because they have credit from the government, and they can move in and in some cases, profitability is not a concern It’s more about expansion ROGER HIRST: Credit, in some ways, not just from China, but globally, central banks in this incredible decade of credit that we’ve seen, or central bank balance sheet expansion How do you feel that has changed the investment landscape vis a vis failed markets and net markets but emerging markets versus developed markets? MARK MOBIUS: It’s a really interesting point, because we’re talking about a market economy Unfortunately, the central banks have interfered in the running of a market economy, because by the injections of cash into the system, by manipulation of interest rates, and so forth, they basically are destroying the market allocation of resources Because if you have negative interest rates, or zero interest rates or 1%, how do you evaluate an investment? If it doesn’t cost money to invest, why not invest in anything? That’s why you see these huge multibillion dollar issues, IPOs of companies are losing

money Some people, of course, are waking up to this reality, but the bottom line is that there’s plenty of cash available for that to happen It distorts the whole market mechanism Because you must remember, the idea of a market economy is that you’re allocating resources to companies and projects which have a viability, are able to sustain themselves over a long period of time If you don’t have that necessity to evaluate, then you’re building things that are useless Of course, this happened to some extent in China, because the promises were given goals to achieve certain growth rate, and they started the building and they have ghost cities, when there’s nobody in the cities This is the problem that you have faced By the way, it’s one of the faults of the Chinese system that could have tremendous impact going forward Unfortunately, the same thing is happening in the West because of central bank behavior The problem with the central banks is that they’re using policies based on irrelevant information If they are looking at inflation, for example, the reality is there’s no inflation, we’re in a deflationary environment That’s the situation and they’re targeting 2% inflation which can never be achieved They can keep on pumping money to try to stimulate inflation, but it doesn’t work You can see that happening in Japan It’s a real problem Of course, it will result eventually in a crisis ROGER HIRST: That inflation is one of those great debates because it feels like we’re in a deflationary environment but then some people would say, “Well, actually, there’s inflation to everything that matters plus, obviously, there’s asset price inflation.” There’s a lot of inflation to everything that really matters, and deflation and stuff that is less exciting For instance, the thing is like genes are cheaper, okay, they do matter, but healthcare in the US is going up You’ve got in the UK, a house of the same size today versus 30 years ago is more expensive There’s a lot of things where people say, “No, there is inflation there in big items things that are going to take me out of consumption and good things.” What is the disinflation that you see, or deflation that you see versus the inflation that a lot of other people say is there, and by the way, is about to come in big size with these central banks doing all this liquidity MARK MOBIUS: The bottom line is this, let’s take medical care Medical care 10 years ago, or 20 years ago, or 30 years ago was entirely different from Medicare today Simply because they are now able to cure diseases that they were not able to cure 10, 15, 20 years ago They have diagnostic equipment now that didn’t exist at that time Yeah, sure, you’re spending more money, but you’re getting more benefit In other words, the degree to which these medicines able to save human life is quite amazing It’s getting better every day This cost a cost In other words, you can’t say that it’s inflation In other words, you can’t say that healthcare today is more expensive than it was 10, 15, 20 years ago It was entirely different, the quality is much, much better, and it’s having a better effect Also, another point that people forget is that feels like prices go up, but how about your wages? Are your wages going up? They are They’re keeping track with this At the end of the day, as Milton Friedman used to say, inflation is always a monetary phenomenon In other words, money is being devalued every day If you look at the history of money, no currency has kept this value, it’s never happened As we were discussing before about candy bars, when I was a kid, I could have a Milky Way It was a big Milky Way for 10 cents Now, you pay $1, it’s about half the size The package looks the same, but it’s shrink inside It’s always something to do with the monetary system and how money is being devalued ROGER HIRST: Our monetary system today is every central bank or every big central bank is pumping these vast amounts of liquidity and it seems that the last is dropped It’s starving companies of– starving potentially good companies of capital, it’s going to companies that don’t need it often through the passive programming as well What is the impact of that on the relative performance of emerging markets versus developed markets, because people always simplistically go developed, emerging is probably the wrong way to do it? How do you see that for an emerging, they always think about emerging markets and people think the big reset is going to be emerging markets will take off? Do we need to reset first, or can you see emerging markets starting to pick up relative to developed, and particularly the US, because their market that’s really driven that? MARK MOBIUS: Well, if you look at the history of emerging markets performance using an index,

you’ll see that since 1988, when the index was first formulated, emerging markets have outperformed the US developed markets by a wide margin In the last 10 years, emerging markets have underperformed because the US market has gone through the roof You have a situation where has the US who’s outperforming the US dollar was getting stronger, whereas emerging market currencies were getting weaker You had a double barrel effect, you had the currency getting weaker in these emerging countries and also the market was not going up as fast as the US market You had the underperformance More recently, in the last few months, you’ve seen emerging markets now beginning to outperform I think the reason for that is that people have been looking at emerging markets as risky, as a risk With interest rates going down to such low levels, now countries that normally would not be considered an investable universe are now being considered You have bond rates moving down so fast, that even the risk these countries can raise, maybe the rates are 7% or 8% but that becomes attractive to people that are getting 1% or even less for US dollars In case of euros, they’re getting minus, they’re paying the bank to keep their money in the bank That’s why you get this distortion of what risk is You’re going into countries that are highly risky that you shouldn’t really be in, but because interest rates are so low, they’re attractive ROGER HIRST: Do you think we’re seeing within EM, there’s a little bit more diversification, because we’ve seen some of the dodgier end of the market economy, call it Turkey, Argentina and a few others, really struggling? Whereas towards the other end, are actually outperforming places like Australian currency terms, certainly? What would be the risk here if– there was a lot of people talk about funding in the US and also funding outside the US and particularly emerging markets having high levels of dollar denominated debt in a world where there are fewer dollars in the international system because the US has changed where the deals with oil and maybe traders pit? Is there a risk that the dollar here could squeeze higher and squeeze out? Because it seems that the Euro and the yen is holding the dollar back What’s the dollar risk? What do you think the dollar is going to do here and how would that impact the broader sense of emerging markets? MARK MOBIUS: I think the dollar probably will continue to be strong, because the US market is doing well and Trump will certainly try his best to make sure the US market stays strong, at least until the election, the next election The only other big change is the rise of the renminbi because the Chinese would like to see the renminbi as a reserve currency to replace the US dollar This will take time, of course I think that’s the direction they are moving They are doing trade deals where they say, “Look, we’ll settle in renminbi rather than US dollars.” As that develops, and as people begin to trust the renminbi, you’ll see the demise of the US dollar ROGER HIRST: That’s going to be a very– MARK MOBIUS: That’ll take many, many years ROGER HIRST: Many years and in the meantime, it may seem that the Chinese government using its currency a little bit as every time there’s something negative on the trade side, they move a little bit down dollar-renminbi, do you think that there is a risk that in some quarters, people think this, that the Chinese will eventually say, “Okay, if we continue this trade war, we’re going 7.50, we’re going to 8,” and as we saw in 2015-’16, when they have even a small sudden lose, the whole of the risk framework start to get overly excited? Do you think that’s still a risk? Do you think the Chinese are, I don’t call it weaponizing its currency, but certainly using it and could eventually say, “Actually, you know what, enough’s enough, if you carry on down this route, we’re going to 7.50, 8?” MARK MOBIUS: They’ve already in there Nobody thought they would break 7, now they were above 7 to the US dollar, 7 renminbi to the US dollar They’re already doing it but I think there’s a real big conundrum for them and that is if they want the renminbi to be a reserve currency, it’s got to be stable They don’t want people thinking that the renminbi could get much weaker That’s one side they have to consider The other side is as you mentioned, in order to maintain jobs, in order to maintain exports, they got to devalue the renminbi I think they have to be very cautious in looking at that, I’m sure there are big debates My thinking is that they probably will err on the side of caution They’ll be more cautious There’s always been a big battle in these countries, particularly in the Chinese community in Taiwan, in China, and so forth between these central bankers who want to control

the currency, and the market people who want to free up the currency That’s the reason why they’ve been so slow in opening up the market to foreign investors because they got to have convertibility If you’re buying stocks, you want to get out as well That’s why they say, “Wait a minute, we’ll let you in a little bit so that we don’t want you to be retreating too much and affecting our currency.” ROGER HIRST: How long will that take, because in some ways, they tried to, but for the foreign investor, to think of a country that could open up its capital account and there could be capital going in, but then you think but actually, they could close it just as quickly In some ways, that I think is how a lot of investors view China, which is this amazing opportunity but it’s amazing opportunity that’s just fraught with that uncertainty because the calculation, the political calculation, has probably confounded most people over the last 12 to 18 months, and potentially for the next 18 months, 12 months, the next election How long is it going to take for them to open up the capital account in a way which is really attractive to genuine external investors? MARK MOBIUS: I think it’ll take a number of years before that really happens, simply because they tend to be quite conservative The central bank in China wants to be able to keep control to their currency and the government also must make sure that the currency doesn’t get out of control, that they don’t have the control This is the problem the US has They can’t devalue It’s a global currency, the globe determines what the currency is going to be Of course, they can manipulate interest rates, and so forth and maybe they raise interest rates, the dollar gets stronger, but not really A lot depends on confidence, but confidence people have in the currency ROGER HIRST: It’s probably pretty true at the moment where the differentials between the US and the rest of the world is so wide, it actually needs to come down first before interest rate differentials matter again, and the form of the US is that if it’s coming down, it probably makes US assets more attractive, so more money will come in and dollar will still go higher MARK MOBIUS: The interesting thing is that some countries, you take Hong Kong, for example, they pegged the Hong Kong dollar to the US dollar and they did that because they figured, well, if we want to get foreign investors coming in and buying stocks here, they’ve got to be confident that they’ll be able to get out in US dollar terms Okay, it’s Hong Kong dollar denominated but they’re linked the US dollar ROGER HIRST: With the current environment where we’ve seen that those countries which seemed to have the tightest relationship with maybe the fewest goods with China, so Korea has been suffering, we’ve seen that, obviously, Germany It seems that a lot of the China area is under a bit of pressure Where do you see in emerging markets, are there any countries, regions, styles of economy, where in emerging markets [indiscernible] is a really interesting one, regardless of what happens with the dollar, I would want to be investing into maybe that specific country or region? MARK MOBIUS: Many of them Take, for example, India, and India is now– and they take off-stage and you have a government now that’s really intent on having better growth in the country They realized that they’ve got to have 7%, 8%, 9% growth in order to employ all these people coming into the labor force India would be one good example Brazil will be another good example of where the country is very dynamic They’re undergoing reforms This is the interesting thing about the internet revolution What has happened is that now, politicians can run but they can’t hide because somebody knows what they’re doing because of this internet, these smartphones You’re seeing reform in a lot of these countries as a result of this development ROGER HIRST: A lot of reforms is coming from strong individuals You talked about it before, in some ways, we’re getting away from bad democracy to what you might see were benign dictatorships like Singapore being good, but actually seeing strong armed dictatorships, some being rewarded, some aren’t Brazil being rewarded recently MARK MOBIUS: Yeah It’s really a populism is what we’re talking about Populism is coming up because of the internet Because of the degree to which a guy like Trump can get elected even though all the major press is against him If you go down the list of the major newspapers in America, they all hate Trump They’re giving negative coverage of Trump The major networks, negative on Trump, but yet he can be elected How does that happen? Internet People are getting their information through the internet ROGER HIRST: With this of the US and we talked about China before and Huawei, there’s these enormous corporates out there now If anything, people talk about the problem we have today is too little capitalism Not too much, because we’ve seen on a global basis, corporates, whether it be from China or whether it be from the US becoming so big, these behemoths, that they are stifling competition It’s almost as part and parcel, this whole world of central banks pushing yields down, passive investing, large corporates which can buy up any opposition and kick it out

Again, it goes back to you’ve just started as an active investor into this quite horrific environment for active investors How do you perceive that going? Because on a global basis, you really want to see these mega companies constrained, at least constrained from subsuming everything else as a small startup, but often is a private startup and never comes to the market How are you going to navigate that world where it just seems that everything’s against you? MARK MOBIUS: That’s a very good point because more and more, you’re seeing companies like Facebook, Google, Alibaba, you name it– and these huge companies We’ll take Uber Uber, they dominate many markets, and they’ve gotten really too big You wonder where are the antitrust people? What are they doing, because part of the whole system, the capitalist system, is based on some degree of restraint, where big corporations cannot dominate an industry because that kills competition, basically You’ve got to have some degree of enforcement, of antitrust or anti monopolistic practices Our answer to that in our investment behavior is to go after medium and smaller size companies that are not in that position Because if we go to a company like Google or Facebook, you’re not going to have anything to set First of all, it’s not one share, one vote The founders of the company control the company You go to them and say, “I want you to reform,” say, “Go home, I’m not interested.” Whereas if you go to a medium or small size company, they’d be more amenable to talk They want to improve They want to get bigger, and provided they have one share one vote, we can have some influence I think there’s a very big challenge for the market economy now is that some of these companies gotten really too big, and therefore monopolizing, and more importantly, getting political power, particularly in America, you must remember that politics are influenced by money There’s no restriction on this You can get people elected based on how much you want to spend ROGER HIRST: Will the US want to break these monopolies– obviously, at home, they might feel that it’s absolutely the right thing to do, but would they want to break monopolies where the biggest competition is the Chinese equivalents, which will remain monopolies or they break of the US star monopolies, the Western monopolies, then suddenly, they may have less strength to compete in that nether region of the world, which is not controlled at the moment by either? MARK MOBIUS: That’s the big conundrum now, and I think that’s probably why the US in particular has not really constrained some of these companies Because you’re not only talking about national competition, you talk about international competition You’ve got a competitor controlled by the state, dominating a sector, and then not being constrained There’s no antimonopoly behavior, which is why what the West is trying to do, at least the US is trying to do, is go to the Chinese and say, “Look, you’ve got to adopt our way of doing things so that we’re on a level playing field You’ve got to now begin to let our companies compete in your market freely without constraint Because otherwise, it’s not a level playing field.” That’s what it’s all about As I mentioned, it’s not only about trade, it’s about a whole system of doing business You can see, from the Chinese point of view, they said, “Wait a minute, we don’t want you coming in and dominating some of our industries, and having a political influence We want to be at the pinnacle of political power.” ROGER HIRST: I guess with that environment, do you, in some ways, okay, well, that’s a battlefield that we can’t necessarily invest in yet, or we can invest in, but it’s a battlefield You’ve been talking about these smaller companies, mid-cap companies, but do you have any specific current account, outside of the ESG, where you are saying in terms of the makeup of government surpluses, debt, et cetera, so what is this current account looking like? You might, obviously, you look at the corruption index, but what are the general important things that say on a country basis that are going to drive you to a specific country to invest in and then maybe dig down to those specific investments? MARK MOBIUS: Yeah The key question is, can we get the money out? When we go in, can we go out as well? That’s the key question Then once you’ve asked that question, then a whole series of other questions come in What’s the political environment? Now, you’re going to get a Chavez like in Venezuela, where you said, “I’m going to take

over all the companies.” You’re going to look at the foreign exchange situation, you got to look a balance of payments You have to look at all these things and the corruption index and all the rest of it to answer that question, once I go in, will I be able to get out again, that’s the key ROGER HIRST: Is liquidity, therefore quite important? Because in an emerging market, you get in, you might not be able to get out, but you might not be able to get out of the stock MARK MOBIUS: That’s right Liquidity, that’s one of the questions, the criteria we have when looking at stocks, what’s the liquidity? ROGER HIRST: In terms of the– that comes to this global framework then, as you’re looking towards it, what people talk about this move towards MMT, so not just going from monetary largess, but now to fiscal largess which print as much money as you want, spend it? Do you feel the global framework is potentially teetering on the edge of something good, because this will work, or something bad because this whole fiscal and monetary combination is just another step in what has already been an extreme shift in the– not the investment, in the central bank, and therefore the investing psyche of the last 10, 15 years? MARK MOBIUS: I think it’s getting better There’s no question The quality of life is getting better and will probably accelerate going forward because of the incredible scientific advancements that we’re making, not only in the financial area, but in medicine, in manufacturing, you name it Incredible changes taking place, which means we have better quality of life, and more progress going forward I think we’re in the greatest period of mankind’s history, basically A lot of people maybe not realize it, they’re more concerned about their everyday problems, but the reality is that we’re in an incredible period ROGER HIRST: Do you think that period is a linear period, i.e. we can extrapolate it a long way, or do you see any risks to– always everyone talks about the everything bubble, but it’s not a bubble yet in EM compared to what we’re seeing in high yield or bonds, particularly in the bond market, which is, in some ways, just an incredible place, given that we’ve got this up to nearly 17 billion in negative yielding debt at one point Could that become destabilization? What has been a very good trend the last 20, 30 years, people always say, well, we just keep iterating towards something more extreme We’re in the most extreme format, which could come crashing down anytime now, but it could still be another 10 years MARK MOBIUS: There will be crises, no question Financial crises will take place because you always have excesses and you have corrections The good news is that the corrections are very short in duration They’re very frightening The markets go down dramatically, but they don’t last down They go up pretty soon, maybe a year after The big danger, I think facing mankind is nuclear disaster because now, weapons capability, people thought that the nuclear bombings in Japan, Nagasaki, and Hiroshima were terrible events, where they don’t realize the power that is now 10 times, 20 times that size This is the real risk, which is why it’s so important to have a dialogue with Russia, with these other countries, to prevent any nuclear accident There’s a very nice book written by the former Secretary of Defense, US, called, “My Journey on the Nuclear Brink.” He mentions cases where they almost made a mistake They were ready to push the button, there was an error In one case, they said, “Look, we got six rockets coming our way from Russia,” and they call back and say, “Oh, we made a mistake It was a model that we put on the computer and it was running.” These are the mistakes that can be made That, to me, is a risk All these other things pale in comparison ROGER HIRST: That’s a risk which is a binary event, isn’t it? In some ways, I’m not going to worry– that’s the end so I don’t focus on that because I worry about the smaller cycles of will I be a little bit poor in the next two years because of a drawdown in the debt world, et cetera? MARK MOBIUS: Well, the good news, as I mentioned, is that there will always be bear markets, but the bear markets are shorter in duration than the bull markets Bull markets last longer That’s the bottom line If you look at the US market, look how long the bull market have lasted Okay, we had the financial crisis, how long did it last? A year or less and then the recovery began By the way, people will make the mistake, they measure the top to the top, there was always taken 10 years for it to go to where was No, you should have been investing at the bottom and you would have made a fortune, because the progress going up was quite rapid ROGER HIRST: People will always say, “Well, 2000 was a small part of leverage, which then got fixed by a bigger part of leverage, which then got fixed by a bigger part of leverage.” We’ve had in the last 40 years these incredibly long business cycles driven by Central Bank

banking Central banks now hold the baby When they go, isn’t that the risk that the next one, because we’re looking for the next, the next one, it’ll go down, and this time, it will stay down because of what comes off the central banks Isn’t that the risk? MARK MOBIUS: No The reason that why it is not a risk is that governments can create money The fact that we went off the gold standard means that now, money can be created out of thin air At the end of the day, all debts can be paid with the devaluation of the currency Now, people may not like the devaluation, they may lose the value of their savings but at the end of the day, these problems can easily be solved ROGER HIRST: I always think that there’s always going to be the element of print money, and we have printed money, and we’ve had an incredible fall in, at least the US, velocity of money If you continue to print money, effectively hand it out, then the whole method of valuing money is now destroyed and everything is just on a maybe it’s a long term slope not to oblivion, but to– I think we talked about this before is do we ever get to the world where it’s the end of investing? There is no active management, because all money is now passive, because central banks have converged everybody to the same growth rate and low growth and nothingness In the risk here that– I know you love gold, but gold works and everything else doesn’t MARK MOBIUS: Yeah, there’s no question that could happen where you have a situation where there is no way of measuring risk, and people therefore, throwing money at anything, and it becomes less productive, basically I don’t that happening I think there’ll be enough level heads to prevent that thing ROGER HIRST: I guess, just finally, looking at this with your investing head back on, people always love to hear the wise words, but outside of gold, which you talked about quite a bit in general over the last few months, but are there any other patches, and you talked about a few emerging markets, are there things, which may be a left field where you go, this is something to watch This is something which I think could be really exciting, maybe not stuff all your money in it now, but something where you think, look, this, the next five to 10 years, is something which could really work for a lot of people? MARK MOBIUS: Well, first of all, let me say that when I mentioned goal, I said maybe put 10% of your portfolio as a safety situation For the rest of the portfolio, got to be an equities, because equities adjust prices, and you’re in much better shape I believe going forward, the big, big advances will be made in the consumer area In other words, with per capita incomes going up, companies that are able to capture the consumer, whether it be on the internet, or in High Street stores or whatever, that’s where you’ve got to be, that’s where big growth is going to be There’s so many industries you can look at that’s incredible In technology, there’s incredible advances being made The problem with the technology is that very often, you really don’t see the results until maybe four or five, 10 years after, whereas with good dividend paying companies with a good return on assets and have good corporate governance, that’s where you should be It can be in any industry but as I said, consumer industries are probably the most prospected because per capita incomes are going up, and you can keep pace with the devaluation of currency ROGER HIRST: These are obviously, a lot of these companies, particularly in developed markets, particularly Europe and the US, are quite expensive Do you think that that valuation doesn’t really matter, because they are quality companies we’d believe in? Do you think it’s going to be a bit like the 1960s in the US Nifty 50, where these things went to an even more extreme valuation? MARK MOBIUS: A lot of people measure value by looking at the price earnings ratio or the dividend yield, or price to book value and so forth, but you’ve got to remember that just looking at price earnings, if the interest rates are at 5%, the reciprocal of that is 20 You can tolerate a PE of 20 times, which by the way, 20 years ago, have seemed very expensive to us, we were buying stocks at five times, or eight times, like that If interest rates are going to one, you can justify 100 price earnings ratio You got to keep that in mind, you’ve got to look at these interest rates movements What I recommend to people is that don’t pay attention so much to the price earnings ratio, pay attention to the return on capital, what return are they getting on their capital Because if they’re getting a good return on capital, and they’re paying dividends, the chances are their earnings per share growth will more than keep up with the devaluation of the currency That’s what we should be paying attention to ROGER HIRST: Despite the world of central banks, despite the world of active management, it sounds like you’re still very excited by the prospects of the equity market, still

excited by emerging markets in general It sounds like you’re really gearing up to multiple more years of doing this Looking very well for you It looks like you’re really enjoying it Very good luck with this latest venture Thank you very much for joining us MARK MOBIUS: Thank you

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