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| Michael Hasenstab |
Franklin Templeton Investments is putting new cash to work in underexposed Asian credits, said Michael Hasenstab, co-portfolio manager of the $700 million Templeton Global Bond Fund within $4.5 billion in assets under management. Hasenstab, who is primarily involved in government and external debt issuance, highlighted the opportunity in developing local bond markets in Asia. "There is a sound economic rationale for allowing currency appreciation there--growth dynamics are quite robust. And if the exchange rate appreciates, it functions the same way as an interest-rate hike, which is to the benefit of these regions," he explained. Hasenstab noted the whole region will benefit from the strength of Asian currencies, but said it is important to look at investments on a country-by-country basis. He expressed concern about the direction of Japanese government bonds. "We have nothing in Japan--we think the yen is overvalued. But the Korean won provides a better value; it has outperformed by over 700 basis points [year-to-date]," he stated. Some of the fund's top holdings include the Kingdom of Thailand's 8.50% notes of '05 and the Korea Treasury Bonds: 6.9% of '07, 5.77% of '07 and 4.5% of '06.
Templeton Global uses the World Government Bond Index and the J.P. Morgan Government Bond Index and is overweight in Asia, which comprises 25% of its portfolio, and in Australia and New Zealand, which account for 14% of its investments. It is underweight in U.S. dollar assets. Hasenstab said the fund outperformed its benchmark because of its heavy Asian allocation, specifically in Thailand, the Philippines and Indonesia. "Asia--especially local bonds--adds an important element of diversification to a portfolio," he added, noting that there are both structural and macroeconomic reasons that Asian credits are undervalued.
