- Hasenstab says markets `grossly miscalculating' free-fall risk
- Recommends Indonesia, Malaysia Mexico Versus Turkey, Russia
Investors calling time on a recovery in emerging markets have got it wrong and are passing up an opportunity to make money that won’t be back for a decade, Franklin Templeton bond chief Michael Hasenstab said.
In a video posted to Templeton’s YouTube channel late on Wednesday, the money manager, who oversees $124 billion across 35 funds, said the strongest rally in emerging-market bonds in seven years still has further to run, reiterating a call he made last year. Hasenstab also criticized peers who warn that slowing Chinese growth and depressed commodity prices are reasons to stay away.
"We think this is a gross miscalculation," Hasenstab said, adding his voice to those of BlackRock Inc. and Schroders Plc in betting that the rally in developing-country assets this year is just getting started. "This is a once-in-a-decade opportunity in emerging markets."
While emerging assets have advanced this year, 2015 saw a selloff fueled by weakening growth in major economies such as China and the Federal Reserve ending an era of loose monetary policy, driving up the dollar and luring money away from riskier markets. The result was that investors "massively overeacted" by including countries like Indonesia, Malaysia and Mexico in the broader contagion, according to Hasenstab.
He named Turkey, Russia, South Africa and Venezuela as countries "in legitimate crisis" on account of "bad policy mix" or over-dependence on oil exports.
"It’s not uniform," Hasenstab said in the interview recorded April 11. Investors can’t lump all nations together and "need to understand the difference between real crisis and perceived crisis," he said.
Hasenstab is well known for making contrarian bets that came good on nations including Ireland, Hungary and Ukraine. While his flagship Global Bond Fund has underperformed about 80 percent of peers with a 4.9 percent loss over the last year, it is in the top 20 percent for the past month with a 2 percent gain.
Some investors remain wary about the sustainability of the rally in emerging markets. Paul Raphael, the global head of emerging markets for UBS Wealth Management, said his clients have been "quite shocked" by the volatility in the markets over the past six months.
"At the moment there is a relative sideline mindset," he said in an interview on Bloomberg TV Thursday. "Clients are very concerned about risk and are relatively shy about taking on large positions."
BlackRock, which oversees $4.6 trillion in assets worldwide, said this week it was betting on emerging-market local-currency bonds given the prospect for central bank interest-rate cuts in countries like Brazil and Indonesia. London-based money manager Schroders, too, recommended buying domestic securities, anticipating they will be the best-performing asset class this year.
Dollar-denominated sovereign bonds of developing countries have returned 6.4 percent this year, the most since the same period in 2009, according to JPMorgan Chase & Co. indexes. Local-currency securities gained 6.3 percent in the period, the most since at least 2003, when data collection began.
"We’re encouraged that over the last couple of months we’ve started to see some stability and some recognition that markets may have over-reacted," Hasenstab said.