- Euro area may be most in danger, according to money manager
- ‘Ultra-nationalism’ is threatening economic growth, he says
The rise of political populism in Europe and elsewhere threatens to slow global growth by fueling protectionism and trade barriers, according to Michael Hasenstab, portfolio manager at Franklin Resources Inc.
“To me, the biggest risk the world faces is the rise of populism and ultra-nationalism that would move in a direction that would be counter to providing the growth necessary to provide jobs,” Hasenstab said Monday during a meeting with the media at a Morningstar Inc. investment conference in Chicago.
In the U.K., four polls show voters are tilting toward leaving the European Union in a June 23 referendum. In the U.S., presumptive Republican presidential nominee Donald Trump has called for building a wall along the border with Mexico and blocking Muslims from immigrating, while also criticizing trade pacts such as the North American Free Trade Agreement.
The euro area is vulnerable to the rise of populism because it’s still only partway through the project of unifying the region’s economies, Hasenstab said.
In response to questions, he said Trump would have a hard time getting his way if elected because the U.S. system limits presidential powers.
“I’d be shocked if the Mexicans built that wall and I’ll just leave it at that,” he said.
The $48.2 billion Templeton Global Bond Fund, which Hasenstab manages, is down 2.9 percent this year and ranks in the bottom 9 percent of its Bloomberg peers. Assets under management at Franklin Resources fell to $737 billion as of May 31, compared with $888 billion a year earlier, the company reported June 8.
Hasenstab said his fund has paid a price for avoiding U.S. Treasuries because of concerns that a Federal Reserve interest-rate increase will hurt holders of long-term debt. He said it will take one to three years for his strategy, betting on emerging-market growth, to pay off and that investors should plan to hold his funds for three to five years to realize the benefits.
The Fed should raise interest rates because the jobless rate has fallen to near full employment and inflation will surpass the central bank’s 2 percent target rate by the end of 2016 as the prices of housing, services and oil climb, Hasenstab said.
“The math that we’ve done, the analysis that we’ve done, says there’s a pretty good risk when you combine the labor market dynamics, the dynamics in the housing market, the dynamics in service costs and the change in the oil cost that you will see that begin to accelerate,” Hasenstab said during a presentation at the conference.
Hasenstab has been investing in emerging markets such as Brazil, Mexico, Malaysia, Indonesia and India after cutting stakes in euro-zone areas such as Ireland and Hungary. He said he prefers countries where currencies are undervalued and strengthening domestic growth creates resilience in case of shocks, such as protectionism.
“The one asset class that has priced in all the bad news scenarios is emerging markets,” he said. “It is a place like Mexico.”