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LONDON, Oct 6 (Reuters) - Franklin Templeton’s star bond investor Michael Hasenstab said on Tuesday he was buying select emerging markets such as Mexico, with the current selloff offering a “multi-decade” opportunity to buy undervalued assets.
Hasenstab, CIO for global macro at Templeton, said also that the U.S. Federal Reserve, which last month delayed raising interest rates, appeared be behind the curve, meaning it would pay to be positioned short in Treasuries.
Hasenstab who made a name for himself by buying markets shunned by others, said he was also buying some other beaten-down currencies such as Malaysian ringgit and Indonesian rupiah.
“We are buying select emerging markets at multi-decade or all-time low valuations. We are buying the Mexican peso at the weakest level it’s been in history of Mexico ... On a valuation level, this is not a once in a decade, this is a multi-decade opportunity to buy very cheap assets,” Hasenstab said in a video interview posted on the company’s YouTube page.
Emerging markets are seeing a huge investor exodus, and according to the Institute of International Finance (IIF) 2015 will be the first year since 1988 that net capital flows to the developing world are negative.
As a result, emerging currencies have skidded to record lows, as in the case of the Mexican peso, while some others such as the Malaysian ringgit are at the lowest levels since the Asian crisis of 1998.
But by buying these assets, Hasenstab is sticking to his contrarian strategy of investing in selected markets that are being shunned by peers, a policy that paid off handsomely in Ireland and Hungary.
Many emerging currencies are 15-20 percent undervalued after their falls, Hasenstab said, adding: “We are quite excited about the return expectations there.”
He said, however, he was avoiding some assets, such as the Russian and South African currencies.
He also said he was short U.S. Treasuries to position for a higher interest rate environment and that the U.S. yield curve was currently underpricing inflation.
“While for the last 30 years, (you) wanted to make money by declining rates, we think over the next five years you want to make money by rising rates. So the strategy is to position short U.S. Treasuries in terms of negative duration,” Hasenstab said.
“Short Treasuries will pay off when the Fed starts to hike interest rates ... they have been slow and potentially getting behind the curve.”
The Fed cited turbulence in emerging markets and China as one reason for holding rates near zero in September, and weak jobs data last week has prompted market players to start betting that the first rate rise in nine years will now be delayed until March 2016.
“Given we are in a 30-year low in interest rates, you don’t want the duration risk and that is why we have moved our portfolio to have negative U.S. Treasury duration. Total fund duration is close to zero, because we don’t want that interest rate sensitivity,” he added.
Reporting by Sujata Rao and Karin Strohecker; Editing by Alison Williams