The next decade holds ‘tremendous potential’ for Latin America as the region’s shift away from populist policies is putting it on better footing than many developed markets, said Franklin Templeton’s Michael Hasenstab.
The bond star and manager of the $42 billion Templeton Global Bond fund, among many others, gave his take on which markets offer the most promise during a recent trip to Mexico.
‘We actually believe Latin America is embarking upon a really exciting era,’ said in a video interview filmed last month and published on the group’s website.
‘We think the next decade for Latin America has tremendous potential. Whereas you see populism rising in the US and in Europe, and policies that are questionable being adopted from an economic standpoint, Latin America is really taking a different road.’
Countries like Argentina and Brazil, whose previous policies damaged their economy and welfare, have shed their populist shackles to embrace more market-friendly policies that will help them realize their full economic potential, he said.
He said: ‘Brazil, with the change in government, we’re quite convinced that eliminating the toxic policies of the past — the overspending, the interest rates that were too low that fueled inflation — getting rid of those toxic policies will allow the country to come back on track.’
Unlike its southern counterparts, Hasenstab said Mexico had never gone ‘off track’ like Argentina or Brazil, allowing it to be resilient faced with many global shocks.
‘You think about what the world has faced — slowdown in the US, incredible financial-market volatility, lower global trade, lower commodity prices — and because of decades of prudent macro policy and building up institutions, an incredible central bank and Ministry of Finance, Mexico has been able to weather those and is still growing. It’s not gangbusters growth, but it’s a pretty solid growth, and we think Mexico is well-positioned going forward.’
Admittedly, he said, this view goes against the market’s belief as the peso is trading at the cheapest in Mexico’s history but the current stresses it is facing are not as damaging as the Tequila Crisis or 2008 financial crisis.
‘So we really think that the market has overreacted. The Mexican peso is probably one of the cheapest emerging-market currencies out there,’ he said, adding that he considers Mexico to still be a good long-term investment opportunity.
His Global Bond had Mexican government bonds as its top holdings, according to the end of September factsheet.
Over the past three years the fund has underperformed its benchmark, returning -5.97% while the JP Morgan Global GBI Unhedged index has risen 7.22%. The bulk of the fund’s underperformance has come over the past year.