Fixed Income  

Franklin’s Hasenstab looks to Japan to fill void

Franklin Templeton’s Michael Hasenstab said global liquidity will not be impacted when the Federal Reserve reduces its bond purchasing programme because Japan will fill the void.

Mr Hasenstab, who runs the group’s giant $45.8bn (£28.7bn) Global Bond fund, said when the US decided to taper its bond purchases, which it carries out as part of its quantitative easing programme, there would still be liquidity globally as Japan seeks to support its benign economy.

“Tapering means that the Fed is no longer pumping water into the pool, but the pool is still filled with global liquidity,” he said.

Article continues after advert

“At the same time, Japan is only just turning on the spigot. So as the Fed turns off, Japan is turning on that pool of global liquidity.”

The manager added he had been “very defensive” in terms of the risk of rising interest rates to his portfolios, but that most of the volatility his portfolios experienced recently was down to currency positioning.

“The volatility we experienced in our portfolios had to do more with currency markets: in periods of panic, you tend to have a uniform sell-off across a lot of currencies.

“What we did during that period was to go in and cherry-pick the ones that we thought had good long-term fundamentals, but were just being swept up in the broad panic of the market. Emerging markets really fell into that category. The talk of tapering led a lot of people to believe that all emerging market currencies were doomed.”

Mr Hasenstab said while a “handful” of emerging market currencies may face problems it would be more for domestic reasons and that not all emerging markets should be viewed as one collective entity.

“We think emerging markets are now increasingly split between those that are reliant on foreign capital and have made policy missteps, and those that are not reliant on foreign capital and have good policies,” he said.