Too much focus on the European debt crisis, and a potential economic slowdown in China, could lead to missed investment opportunities elsewhere, ones that could help investors at least preserve their capital, according to Michael Hasenstab, co-director of the international bond department at Franklin Templeton.
Speaking last Wednesday in Chicago in a keynote address to kick off the annual Morningstar Inc. investment conference, he also criticized the easy-money policy of many governments.
“We should be thinking about this unconventional monetary policy of printing money by central banks. If it were that easy [to fix a financial problem], we would always print money, but there can be some very destabilizing consequences,” Mr. Hasenstab said.
"PRINTING OF MONEY
“Never in the history of central banks have we had such significant printing of money,” he said.
Because of the volume of money being printed by central banks, “cash won't preserve wealth, so we have to take risks even just to preserve capital,” Mr. Hasenstab said.
“It's times like this that really set you up for some long-term gains, and I think we need to re-evaluate how we think about risk and how we think about emerging versus developed markets,” he said.
Mr. Hasenstab tried to put some of the global financial turmoil in perspective.
“In many ways, the crisis in Europe is a blessing in disguise, because un-less there's a crisis, the politicians will do absolutely nothing,” he said.
Mr. Hasenstab, who manages $160 billion across multiple portfolios, acknowledged that Greece, Italy and Spain each are operating under varying degrees of fiscal stress. But at least, he said, Italy and Spain are moving in a positive and healthy direction.
Greece is “fiscally terminal” and likely headed toward one of three possible outcomes, Mr. Hasenstab said.
“One likely scenario for Greece over the next couple of years is an ongoing subsidy from the rest of Europe,” he said. “The other scenario would be a Greek exit from the euro, and that would be incredibly costly to the people in Europe. The pain Greece is feeling now under austerity is nothing compared to the pain of an exit.”
The final and most likely option, he added, would be some form of debt restructuring.
Ultimately, he said, “Europe is messy, but it's not Armageddon.”
On the subject of China, Mr. Hasenstab also downplayed the likelihood of a hard landing, but he did say wage pressures could start to have an impact not just on China but global growth in general.
Ultimately, he explained, in-vestors and financial advisers need to look beyond the fear and the most immediate areas of fiscal unrest and toward other opportunities.
The emerging markets, for example, where the debt-to-GDP ratio is under 40%, compared to 100% in the developed markets, should “upend traditional models with regard to debt,” he said.
“There is no risk-free asset today,” he said. “Probably the dollar does well against the euro and against the yen. But they will all do horrible against the rest of the world.”
jbenjamin@investmentnews.com
