The risk that a Greek default could spur a financial crisis in Europe is “incredibly low,” because the European Central Bank has pledged to lend in the event of a credit seizure, according to Michael Hasenstab, a portfolio manager at Franklin Templeton Investments.
“The market’s fears of a systemic crisis coming out of Europe are overstated,” Hasenstab, who helps oversee $150 billion as co-director of fixed income, told reporters in Sao Paulo yesterday. “Certainly in emerging markets, there’s too much fear. The risk of a systemic collapse in the banking system is incredibly low given the ECB has committed to provide liquidity. That is a key element that differentiates this period of volatility from 2008.”
San Mateo California-based Franklin Templeton is largely invested in domestic fixed-income instruments, mostly sovereign debt, Hasenstab said. The $60.7 billion Templeton Global Bond Fund, run by Hasenstab and Sonal Desai, had its largest investments in South Korea, Australia and Malaysia as of June 30, data compiled by Bloomberg show. It’s second in size only to Pacific Investment Management Co.’s Total Return Fund among actively managed U.S. debt mutual funds.
If the ECB and the Federal Reserve print money to ease credit strains, it could have a “mildly positive” net effect for emerging markets by encouraging inflows, Hasenstab said.
He said it’s “too early to tell” whether the Brazilian central bank made the right decision by cutting the benchmark Selic target rate a half point, to 12 percent, last month after raising it at their previous five meetings.
“The Brazilian central bank has built up a lot of credibility by bringing inflation under control so that will give them some time,” he said. “Emerging markets should continue tightening or at least not be too quick to loosen because I think conditions in most emerging markets are reasonably positive.”
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