Templeton Bets on Malaysia as Hasenstab Sees Slump Overshot

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Franklin Templeton, whose contrarian bets made profits in Ireland and face losses in war-torn Ukraine, has been buying debt in Malaysia as global funds flee.

The San Mateo, California-based money manager which oversees about $855 billion, has over the past two years become the largest holder of Malaysian government local-currency bonds due in the next 30 months among funds that make their quarterly filings public, data compiled by Bloomberg show. Various of its funds added an aggregate 9.64 billion ringgit ($2.3 billion) this year to holdings maturing from September 2015 to February 2018, bringing the firm’s total claim to 23.1 billion ringgit, the data show.

Malaysia’s currency and bonds are slumping as probes into donations to Prime Minister Najib Razak cloud the outlook for an economy rocked by plunging oil prices and a selloff in emerging markets. PineBridge Investments LLC said this month it has recently trimmed Malaysian sovereign bonds and the cost to insure the debt has soared amid the scandal surrounding state investment company 1Malaysia Development Bhd.

“While the Malaysian market has come under extreme stress, we still believe in the long-term value of our investment in the country,” said Michael Hasenstab, chief investment officer for Templeton Global Macro, which oversaw more than $170 billion as of June 30. “The Malaysian economy is far stronger today than it was” during either the global crisis of 2008 or the Asian crisis of the late 1990s, he said.

Malaysia’s Finance Ministry didn’t immediately respond to requests for comment.

Ukraine, Ireland

Hasenstab’s trades have helped him become one of the world’s most successful bond fund managers. He helped trigger a turnaround in sentiment for Ireland -- and made billions of dollars -- by buying the nation’s debt in July 2011, eight months after the country entered an international bailout. Hasenstab met with Ukraine’s Finance Minister Natalie Jaresko this month and is trying to avoid a 40 percent cut to the billions of dollars in Ukrainian government debt his funds hold.

Templeton started to build its position in Malaysian local government bonds more aggressively at the beginning of the year, data compiled by Bloomberg show. The asset manager’s biggest exposure is to notes due next month. The fund data compiled by Bloomberg is based on numbers for periods ended either June 30 or July 31, depending on reporting timetables.

On Course

The Templeton Global Bond Fund, managed by Hasenstab, has had an average annual return of 7.3 percent over the ten years ended July 31 and a loss including reinvested dividends of 1.48 percent this year through July, the firm said. In net asset value terms, it has fallen 6.2 percent in 2015, according to data compiled by Bloomberg.

Both Moody’s Investors Service and Standard & Poor’s are standing by their respective A3 and A- ratings on Malaysia as they expect the government to stay on course with its reforms.

The yield on Malaysia’s five-year government bond rose to a more than six-year high of 4.05 percent on Aug. 17 and ended today at 4.03 percent. The cost of protecting the country’s debt against nonpayment rose to 196.5 basis points, the highest since October 2011, CMA tick-by-tick data signals. The ringgit has slumped 17.6 percent this year against the dollar, the worst performing Asian currency.

“We believe the current movement in the exchange rate has overshot fundamental value,” Hasenstab said.