Mobius favours China consumer firms, frontier market Nigeria

•  Says govt. focus positive for China consumer firms
• Concerned by potential steps to restrict trade, investment

HONG KONG (Reuters) - Firms that can tap China's rising consumer spending are the top picks for Templeton fund manager Mark Mobius over the next 12 months, as the world's most populous nation aims to boost consumption.

The veteran emerging markets specialist, who spoke to Reuters Insider, said firms in sectors such as food, clothing, restaurants and services, could pose good investment opportunities as the consumers in China get wealthier.

"Per capita income is moving up at a very rapid rate. The government wants more consumption locally. And there are more consumers in China than probably anywhere else, except in India. So, that's a place to be," said Mobius, who oversees more than $40 billion as chairman of Franklin Templeton's Emerging Markets Group.

Speaking to Reuters Insider on Friday, he said the increase in money supply will result in higher inflation, but that will be tempered by rising productivity in both China and India.

Inflation will not be as bad as people may expect and the policy tightening measures are not going to be excessive and general, he said.

"In other words, they don't want to kill the growth that we have seen. But at the same time, they want to attack those pockets of excess, and that's the way they will handle it," he said. Mobius is more concerned about any step that could restrict trade and investment, he said.

"As you know, there had been noises in the U.S. and in Europe about that. And if this comes to pass, then it will not be good for anyone, including emerging markets, of course."

The fund manager said he was very confident about China's long-term potential as the economy turns more diversified and pockets of opportunity emerge in different parts of the country.

"You are going to see the economy moving from the coast to the interior. So the opportunities are going to be boundless."

Emerging markets

Aside from opportunities in the so-called BRIC countries — Brazil, Russia, India and China — the veteran money manager sees favourable prospects in frontier markets, citing resource-rich Nigeria as his top bet.

"I know it's way out in terms of people's minds. The risks are there of course. But it's a big country, it's one of the biggest in Africa, and it's a fast-growing country, so I think there's a great opportunity there," he said. The money manager, who has made his name by picking stocks in the emerging markets, said the biggest risk was that too much money would be invested in the market, chasing too few stocks.

The good news in 2010 was that initial public offerings and secondary issues are expected to double the amount they raised in 2009 and flows are coming in to funds. "But that balance is very, very important because you've got to get this money in a home where it's relatively safe. And some of these IPOs are in pretty good shape, so that's something we have to watch very carefully," he said.