Mobius: Japanese QE set to shake-up Asian trade

The Sino-Japanese island dispute has only flared up recently due to China’s need to show its economic dominance but it is Japan investors should be watching, according to Mark Mobius.

Speaking to Citywire Global from Nairobi, the veteran emerging market investor said he was watching the Senkaku/Diaoyu islands dispute closely.

Tensions flared up further on Thursday when China flew in the airspace above the islands, causing the Japanese to scramble fighter jets in response.

However, Mobius – who runs two dedicated Asian equity strategies and a Chinese equity fund – said he is paying more attention to the Bank of Japan’s monetary measures, as they will have a more obvious and immediate impact for how trade between Asian nations develops.

‘The island issues do have big implications but what is more important is the moves by Japan to increase inflation and increase money printing to keep the yen down. This will have widespread implications for trading in Asia and emerging Asian growth,’ he said.

The Bank of Japan is widely expected to announce further monetary easing measures in response to worsening economic data. It has previously launched widespread asset purchasing in order to stave off inflation.

Mobius added that the long-running political tensions over the islands had only been exacerbated recently due to China’s newfound economic and military strength compared to its near neighbour.

He said: ‘The dispute between Japan and China has been going on for a long, long time but the only major thing that has changed is China has become more assertive. It now has the economic strength and military power, but there is still a key part to play for European intervention as well.’

‘Of course we take the dispute and the tensions in the area into account, we are cautious over what the effects will be. We have a lot of interest in China and the region as whole, particularly in emerging areas like Thailand, and also through local funds in countries such as Malaysia.’

Mobius’ best performing Asian strategy is the Templeton Asian Smaller Companies fund, which has returned 70.52% in the three years to the end of October 2012.

This compares to its Citywire benchmark, the MSCI AC Asia ex Japan Small Cap TR USD, which has risen 17.32% over the same period.