Argentina's Mystery Rescuer Revealed

Franklin Templeton's $38 billion Global Bond Fund is suffering from its weakest start to a year since 2005, trading at it lowest price since January 2017 amid a slump in local debt of Brazil, Mexico, and Argentina - three of its biggest long-term holdings.

The fund, run by Michael Hasenstab, is down around 1.5% YTD after a dismal May that erased a gain for the year that had placed the fund at the top of its peer group at the end of April.

Hasenstab's biggest holdings were in short-dated Mexican bonds, mid-dated Brazilian bonds, mid-dated Indian bonds... and over $1.1 billion worth of Argentine debt...


That was until yesterday, when Hasenstab - the 'private sector IMF' as The FT's Robin Wigglesworth crowned him - decide to bailout Argentina with his investors' money.

The Financial Times reports that Argentina's "success" in its bond auction/roll last night was due to the Franklin Templeton manager who bought more than $2.25 billion - or more than three quarters of the 73bilion peso ($3bn) in Argentina 'Botes'.

Tripling his fund's exposure to the South American nation as it begins its bailout talks with the real IMF.

This is not the first time the 'private sector IMF' has bailed out a country in distress... as The FT notes,  Mr Hasenstab, the chief investment officer of Franklin Templeton’s global macro team, has earned a reputation for placing big bets on countries in economic and financial distress, such as Hungary in the wake of the financial crisis, Ireland at the depths of the eurozone crisis, and Ukraine around the time of its revolution.

While Franklin Templeton declined to comment on the Bote sale, Mr Hasenstab said in a statement:

“The current government continues to demonstrate incredible resolve and skill in giving life back to an economy that had all but collapsed.”

He added:

“Over the last months some policy errors did occur, as is common in any reform effort as large as is currently being undertaken. Importantly, errors were recognised and reversed and we remain confident the right policies are in place to improve the economy, (the) welfare of Argentines and the markets.

Hasenstab also defended his long-term holdings in Latin America in an interview with Bloomberg TV earlier this month, saying that Argentina is a “long-term buy” because it has already reversed its policy mistake and will now get back on track.

He stressed that Argentina and Brazil are examples of countries that have rejected populism and unsustainable macro policies, giving them “great potential.”

That was right before the currency collapsed...

While Hasenstab has gone "all-in" on Argentina, he is not alone in his bullishness as it seems the entire buy- and sell-side is anxiously pitching investors to remain long EM debt, FX, and stocks no matter what...

“We see nothing in the recent unwind of emerging-market positions which in any way changes the benign outlook for EM,” said Jan Dehn, the head of research in London at Ashmore, which manages about $77 billion of developing-nation assets. “This is the time to buy EM, not to sell.”

Morgan Stanley Investment Management also agrees.

“We believe that the EM fundamentals generally remain strong and this period of underperformance will end and EM assets will once again begin to outperform,” it said in a note received Wednesday.

The dollar’s recent strength was fueled largely by speculative investors covering their short dollar positions -- and “not due to a change in investor perception of the macro backdrop,” Goldman Sachs Asset Management said in a note.

“Recent relative underperformance in emerging-market debt appears excessive and we don’t think broad-based weakness is warranted given strength in select EM markets.”

Are they all worried?