INSUBCONTINENT EXCLUSIVE:
By Ruth Carson and Andreea PapucFranklin Templeton Investments says the rout in emerging markets may be nearing a bottom though reckons
there are still countries like the Philippines that will suffer.
Given the uncertainty, the money manager is keeping a net neutral dollar
position, while making trades including shorting the Philippine peso, as well as betting the Aussie will decline against the New Zealand
dollar, said Chris Siniakov, managing director of fixed income for Australia at Templeton.
“We are trying not to make the big dollar
decision at the moment because we feel like it could pop either way,” Siniakov said in an interview in Sydney
“We are preferring to choose where there’s relative value and who we expect to be winners and losers in the emerging market
complex.”
The rout in emerging-market assets this year was spurred by higher Treasury yields and US tax cuts, alongside angst over the
escalation of trade restrictions between the US and China
Still, Templeton’s willingness to sit out a directional bet on the dollar highlights how divided money managers are after the greenback
has gained more than 5 per cent since mid-April.
JPMorgan Asset Management and Man Group Plc are among those expecting further strength
Others such as DoubleLine Capital’s Jeffrey Gundlach see a decline by year’s end.
The greenback’s resurgence has prompted President
Donald Trump to previously jawbone the currency
That’s not deterring speculative investors such as hedge funds that are still betting on further dollar gains, data from the Commodity
Futures Trading Commission show.
It could go either way, Siniakov said
The dollar might appreciate more if investors continue to seek haven assets amid worsening US and China trade relations, though it may be
weaker if the US economy starts to overheat and the chance of a slowdown starts to weigh on investors’ minds, he said.
“For us here
locally we’re focusing on the Asia region, it’s about countries that are in a better fiscal position, good domestic stories and good
policy actions by their leaders,” said Siniakov
Some emerging markets, including Turkey and Indonesia will continue to see pressure, he said.
The core of Templeton’s fixed-income
portfolio consists of investment-grade corporate bonds
But even there, things are looking expensive, he said.
Below are excerpts of an interview with Siniakov and Andrew Canobi, director of fixed
income for Australia at Templeton, the California-based money manager, which oversees $722 billion in assets:
What else are you
buyingWe’re continuing to hold inflation protection -- we play in the zero coupon swap space in US inflation markets
If late-cycle inflation does spike in the US, then we have some protection
We’ve also taken some options on some credit-default swap indices.
Why short the AussieWe’re looking at an Australian dollar range of 70
The Aussie dollar is being driven lower not by domestic factors, even though the property market headlines have some offshore investors
It’s a risk currency that’s caught up in the emerging market malaise
Until those issues go away, the path for the Aussie is likely lower.
On the other hand, New Zealand’s economy is not in bad shape
The market’s gone from a tightening bias to now a little bit of easing
The kiwi dollar suffered because of that
We still think the hurdle’s pretty high for an easing
We see the Aussie potentially trading at around 106 against the Kiwi.
Have we seen the end of the emerging market routWe are closer to a
bottom, although I don’t know that we’ve seen a real capitulation in emerging markets
There’s been pressure, but in some ways it’s been orderly
We haven’t seen the shock and awe, for example, through a real dive in Treasury yields and a full flight to quality.
What’s your view on
the FedThe market’s priced for maybe 2.5 interest-rate hikes in the US over the next 12 months
We think the most important metric is going to be financial asset prices -- as long as they remain stable, the Fed is emboldened to keep
