The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own.
The recent selloff in emerging-market assets, including Mexico and Malaysia’s currencies, has opened up investment opportunities not seen for decades, according to Franklin Templeton’s Michael Hasenstab, who’s well known for making contrarian bets.
“On a valuation basis, this is not a once-a-decade, this is a multi-decade opportunity to be buying very cheap assets,” Hasenstab, who oversees 30 funds with $143 billion in assets, said in an interview posted on YouTube Monday. “We are not buying everything,” but “there are a handful that have been caught up in the turmoil that we think are diamonds in the rough,” he said.
The San Mateo, California-based money manager said he’s buying the Mexican peso, Malaysian ringgit and Indonesian rupiah, while avoiding assets in Turkey, South Africa and Russia. He’s also betting on an increase in U.S. Treasury yields and sees the dollar strengthening against the euro, yen and the Australian currency.
Hasenstab, an avid mountaineer who climbed Mount Everest, is doubling down on emerging markets after a slowdown in China’s growth rate, a slump in commodities and the prospect for an increase in U.S. interest rates roiled markets from Brazil to Malaysia. Emerging markets are set to record the first net capital outflow since 1988, the Institute of International Finance estimated last week.
The Mexican peso has fallen 12 percent this year and reached record lows, while the ringgit tumbled 20 percent to levels last seen during the 1997-1998 Asian financial crisis.
Hasenstab’s view on emerging markets stand in contrast with some of the biggest hedge funds. Fortress Investment Group LLC told investors last month that emerging markets are at the beginning of a bear market that could rival the Asian financial crisis of 1997. Ray Dalio’s Bridgewater Associates has said the impact of emerging-market losses is likely to be more widespread than in the crises of the 1980s and 1990s because investors have more money invested in developing markets.
During his 20 years at Franklin Templeton, Hasenstab has established his reputation as a bond manager by placing large bets on assets when they were plunging. He made billions of dollars by scooping up Irish debt in July 2011, eight months after the country entered an international bailout.
Hasenstab has a history of being bullish on emerging-market debt. In an interview in 2002, he said he had a “fairly optimistic” view on developing markets, and over the years reiterated his positive outlook on debt in countries including Russia, the Ukraine and Malaysia.
His reputation was tarnished after an investment in Ukraine turned sour as the conflict-torn country defaulted on its bonds. A Templeton-led creditor committee holding about half of the country’s $18 billion Eurobonds reached a restructuring deal with the Ukraine government in August.
Hasenstab’s Templeton Global Bond Fund, which manages $61 billion, has lost 6.1 percent this year, trailing 85 percent of its competitors, as some of its wagers on emerging markets flopped, according to Morningstar Inc. It returned 7.1 percent annually over the past decade, beating 99 percent of its peers.
At the end of June, the fund had invested about 14 percent of its assets in South Korea, according to the company’s Website. Mexico accounted for 9 percent, while Malaysia made up about 7 percent, ranking as the second- and third-largest holdings. Franklin Templeton funds were the largest owner of Malaysian government local-currency bonds due in the next 30 months among funds that disclosed their holdings, Bloomberg reported in August.
Hasenstab said the biggest risk for global investors over the next few years is rising U.S. Treasury yields, partly because the Federal Reserve is at risk of losing “credibility” in fighting inflation.
“While over the last 30 years, I wanted to make money by declining rates, we think over the next five years, you want to make money by rising rates,” he said.