LONDON, Dec 1 (Reuters) - The negative effects on the Mexican peso from potential trade restrictions have been excessively priced in by markets and do not reflect fair value, Michael Hasenstab, chief investment officer of Templeton Global Macro, said on Thursday.
Emerging markets reacted negatively after Donald Trump's election as U.S. president, but the peso bore the brunt of the selling given Trump's campaign rhetoric on trade tariffs, immigration and border walls.
Hasenstab, who made his name with audacious bets on Irish and Hungarian bonds, among others, argued that any restrictions imposed by Trump would not end trade between the United States and Mexico, given that many of the largest U.S. corporations have integrated Mexican production into their supply chains.
This complicates the ability of any administration to significantly reduce trade between the two countries, even with an imposition of tariffs, he said.
"We expect a recovery in the peso as the country's central bank continues to use policy to strengthen the currency and markets adjust to the underlying fair value," he said.
He also has positive outlooks on several local currency exposures in other emerging markets he views as undervalued - notably Brazil, Argentina, Colombia, Indonesia and Malaysia.
"A number of EMs have already weathered severe shocks over the last year and appear far more resilient to potential increases in trade costs at the margin than markets have indicated," he said.
If the incoming U.S. administration does impose trade restrictions and tariffs, this would drive up the costs of goods in the United States.
He expects U.S. inflation to rise above 3.0 percent in early 2017 as the base effects from last year's decline in oil prices fall out of the figures and government spending increases. (Reporting by Claire Milhench and Karin Strohecker, editing by Nigel Stephenson)