Investment gurus differ on China

Posted by Mark Bunting on July 23, 2008

They are gurus of a different kind, if for no other reason than their ideas usually pan out far better than, say, Mike Myers’ ill-conceived brainstorm, The Love Guru. Yes, these gurus of the investment sort might be the most successful and well-respected emerging market investors there are:

Jim Rogers, author of many books including the recent A Bull in China, which makes a very compelling case for investing in that country for years to come.

Mark Mobius, he of the Man from Glad look, when he’s wearing a white suit, that is. Mobius handles $47 billion US in assets for Templeton Funds and is highly-regarded for his stock-picking. (BNN’S managing editor Marty Cej recently interviewed Mobius.)

And Marc Faber, publisher of the Gloom, Boom and Doom Report. You might have guessed that he’s slightly more bearish than other money managers.

Two of these gurus think the time is right to put money to work in some beaten-down emerging markets, especially China and India.

China’s CSI 300 Index is down 45% year-to-date. It’s the third-worst performing index this year of 88 tracked by Bloomberg. Only Iceland and Vietnam have performed worse in 2008.

China’s gross domestic product is rising at the slowest pace since 2005, albeit at about a 10% clip. India’s Sensitive 30 Index is down 30% this year. And inflation in that country is running at the fastest pace in 13 years.

But Rogers and Mobius smell opportunity.

Rogers is well-known for predicting the commodity bull market way back in 1999. That’s also the year he started buying Chinese stocks. He says he’s never sold any of them. Rogers says it’s no time to give up on China.

At the same time, Mobius has been rearranging his portfolio to take advantage of valuations for Chinese stocks that have fallen ‘’pretty dramatically’’ as he puts it. The price/earnings ratio on the CSI 300 is now at 21 after having hit a balloon-like 53 as the index rose over 160% in 2007.

The Sensitive 30 Index p/e is a reasonable 14.

Mobius also likes Brazil and Russia because of the energy and mining companies. He says the countries are ‘’swimming in liquidity." Having said that, Mobius’s main fund is down 19% this year.

As for Marc Faber, he thinks piling into Chinese stocks right now would be a mistake. Investors doing that would be setting themselves up for more losses.

Three gurus, three opinions and not a weak idea in the bunch.