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By Ashley Redmond | 12-12-2013 12:00 AM

Hasenstab's Guidelines for Emerging Markets

Templeton Global Bond manager Michael Hasenstab outlines his criteria for investing in developing markets, and explains why he sees opportunities in China and Korea.

Securities mentioned in this video
TPINX Templeton Global Bond A

Ashley Redmond: It's Emerging-Markets Week on Morningstar.com, and we're going to speak with Michael Hasenstab, lead manager of the Gold-rated Templeton Global Bond. He is going to give us his take on some issues and opportunities facing global fixed income investors today.

Michael, thanks so much for joining us.

Michael Hasenstab: Thank you very much.

Redmond: Templeton Global Bond looks to identify countries with healthy or improving fundamentals, which has led you to some emerging markets. What are your criteria, and where have you found some of those opportunities?

Hasenstab: When we look at the global economy--and it doesn't just apply to emerging markets, it applies to developed markets as well. But specific to emerging markets right now, we're looking for a handful of characteristics that we think will present good long-term opportunities.

First, we're looking for economies with good macroeconomic fundamentals--so countries that have been progressing with structural reform, improving the productivity of their economy. A place like Mexico that most recently passed a number of labor reforms and educational reforms, and is undertaking energy reform. So they will improve the growth capacity going forward.

We also look for countries that have responsible fiscal policies. Since we are lending to those countries, we want to ensure that we can get our capital back, so we look for low levels of indebtedness, or in the case where the indebtedness is high, we look for a future path where that will be brought down and that there's fiscal commitment to appropriate policy.

We also look for a robust balance of payments. So we are looking for a trade sector that is competitive. We are looking for a country that has built large international reserves to be cushions, or insurance policies, against volatility in capital markets.

We also look for a consistent policy framework. We want the country to be working together, where the Ministry of Finance, the central bank, the elected leadership in Parliament are all on the same page and the country is going in a good direction. So, political consistency, policy consistency, good macroeconomic fundamentals, those are characteristics we are looking for, plus, good value.

So, I brought up Mexico. Mexico, we see a good policy framework. We see strong and improving growth conditions, and at the same time, we are able to earn a fairly attractive yield without taking a lot of interest-rate risk. So, those are the type of criteria that we are looking for.

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