LONDON – Taxi service Uber has had its fair share of criticism, but now it is being held partly responsible for the growing problem of deflation.
Mark Mobius, the pioneering emerging markets manager at San Mateo, California-based Franklin Templeton Investments, told the audience at Morningstar’s investment conference today that Internet apps like Uber, which allow people to quickly order a taxi, are the reason for increased competition and falling prices across the globe in the transport business. Online companies like Amazon are having a similar effect in creating disinflationary and even deflationary pressures, according to Mobius.
“Central banks can’t find a reason to raise rates as inflation is going down. And my belief is prices are coming down because of the Internet, and communication,” he said.
“I’m not sure interest rates will go up, and if they do, whether they will sail is the big question. And we have to be very cautious about that,” he added. “If they do go up fast, it will be a disaster for markets.”
His comments come as the indexing firm MSCI is considering adding more Internet companies to its benchmarks, such as Chinese Internet company Alibaba. Mobius said he believes MSCI will also add Chinese domestic equities listed in mainland China—so-called A shares—to its global benchmarks by the end of 2015.
As for the strengthening US dollar, Mobius said the Fed can’t allow the currency to get much stronger as it will ‘kill’ exporters. The US dollar has strengthened approximately 25 percent versus the euro since the start of 2014, with the euro-dollar cross trading at $1.12 today.
“I have a feeling the U.S. dollar can’t get much stronger over the year,” he said.
Mobius recommended a 40 percent allocation to emerging markets, with 15 percent of that in frontier markets, on a five-year view. This compares to the current global market capitalization of a 30 percent weighting to emerging markets, with 3 percent in frontier markets.
He added that passive funds have a place and are posing a challenge to active managers.
“Clients are looking at the index and saying: ‘Look, if managers can’t do better than the index, then why not go passive?’ And we don’t always outperform the index, no question about that,” he said.