"Market Monitor"-Michael Hasenstab, Portfolio Mgr., Templeton Global Bond Fund
Friday, September 12, 2008PAUL KANGAS: My guest "Market Monitor" this week is Michael Hasenstab, the portfolio manager for the Templeton Global Bond Fund.
And, Michael, welcome back to NIGHTLY BUSINESS REPORT.
MICHAEL HASENSTAB, SENIOR V.P., PORTFOLIO MANAGER, TEMPLETON GLOBAL BOND FUND: Great to be back, thank you.
KANGAS: We know how volatile and rather bearish the stock markets have been recently, but how have global bond markets been behaving?
HASENSTAB: You know, actually, there have been some pretty good opportunities out there in global bonds. We've had a number of countries outside of the U.S. now following what the U.S. has done over the last couple of years, and that is, start to cut interest rates.
So that has certainly been bullish for some of the bond markets. For example, just earlier this week, New Zealand cut 50 basis points over the last month. Australia has cut interest rates. So as we see the transmission of the U.S.-led slowdown now touch into parts of Europe -- actually, most of core Europe, the U.K., Japan is slowing, that has pretty important implications for bond markets.
So we're fairly encouraged that as this continues we will find some more opportunities out there.
KANGAS: We're going to put up a chart of how your fund has done so far this year. Let's have a look at that chart, if we may. And it has been a rather bumpy ride, down sharply earlier in the year, and then a big rally. What went on there?
HASENSTAB: You know, certainly, there has been a lot going on in the markets. We're pleased that year-to-date we're up over 3 percent, which has done pretty well compared to some of the other asset markets out there.
Their total volatility year-to-date is between about 4 to 5 percent. So certainly there has been volatility, as you can see there, but on a relative basis, it has actually been pretty good. And it has done, I think, a pretty good job of offsetting some of the risks that one might have in other parts of their portfolio, with regards to equity volatility.
Now we have seen some interesting developments on the currency side, so the dollar has had a pretty big rally, and that has been against really all currencies out there, initially. And we think over time this is creating a big opportunity, because while we are short the euro versus the dollar, short the pound versus the dollar, we still are encouraged by the opportunities out in Asia.
And over the last couple of months, we've seen Asian currencies, along with the euro, move down, and that lack of differentiation between fundamentals in Europe and Asia, we think, is an opportunity.
And so we have actually been adding positions, going long Asian currencies versus the euro in the portfolio to position for what we think over the next couple of years will be some pretty good developments that continue to come out of Asia.
KANGAS: Interesting. How about the Chinese economy itself? We hear reports that it's about to take a sharp drop. Do you agree with that and see that happening?
HASENSTAB: You know, there was a lot of skepticism, you know, maybe post- Olympics, there would be a big hangover, but the reality is we haven't seen that. We have seen a downshift in growth, but growth is still coming in around 10 percent.
We would expect that to moderate. But even if you get growth down to -- closer to 8 percent, it's still 8 percent. The export growth has clearly slowed, but that is being offset somewhat by an increase in government spending and infrastructure investment.
So, ultimately, we think Chinese growth moderates but it remains a core anchor for growth throughout the region. So we're fairly encouraged that while overall Asian growth will moderate, it will still relatively outperform growth in, certainly the U.S., or in parts -- other parts of Europe.
And that relative growth differential, I think, will benefit those economies and continue to bring capital into Asia, which should support their currency.
KANGAS: We just have a half a minute left. What about Russia, Michael?
HASENSTAB: You know, I think certainly also some pretty interesting developments there, but if we look at it from a credit standpoint, Russia could be a country over the next couple of years that is able to retire all of their government debt.
So in terms of macro stability, we think that Russia is actually in pretty good shape, and the credit risk premium in Russia has backed up a little bit but, but ultimately, from a credit standpoint, we still think it's a pretty solid credit.
KANGAS: So, Michael, basically, you're bullish on bonds on a global basis, yes?
HASENSTAB: It does vary country by country. I do want to emphasize that there are some countries where we're very bearish on bonds, but there are a lot where we are finding some opportunities.
KANGAS: Michael, I want to thank you for sharing your insights with us. Thanks very much.
HASENSTAB: Great. Thank you, my pleasure.
KANGAS: My guest, Michael Hasenstab of the Templeton Global Bond Fund.
