Michael Hasenstab, a bond-fund manager at Franklin Resources Inc.'s unit Franklin Templeton, has a bullish outlook on Latin America's orthodox political gains thanks to three of its new leaders: Mauricio Macri from Argentina, Pedro Pablo Kuczynski from Peru and Michel Temer from Brazil, Bloomberg News reported.
Hasenstab expects a "drastic turnaround" for the Mexican peso in 2017 after its worst year since the 2008 financial crisis. "The Mexican peso suffered extraordinary pressure in 2016, but domestic conditions and legislation are setting the stage for a drastic turnaround in 2017," the executive was quoted as saying.
The fund manager believes that concerns are unwarranted that Mexico's economy will be greatly impacted if trade restrictions with the U.S. are implemented, saying that any restrictions could increase costs but that trade won't cease between the two North American nations.
According to Hasenstab, the company has made gains in high yield valuation-based corporate bonds and now favors investments in debt tied to specific local emerging market currencies, including Brazil, Mexico, Argentina and Colombia. Overall, the bond-fund manager sees Latin America as "our greatest regional weight" for 2017.
"Brazil is heading for a long-term recovery and part of this long-term recovery, unfortunately, requires some short-term economic pain. We anticipate some periods of volatility, but in general, Brazil seems to be on track with its reforms," Hasenstab noted.
On the other hand, Venezuela is an "exceptionally vulnerable" country with several issues, including external debt that has tripled over the last decade, international reserves that have collapsed and currency controls that have caused a shortage of goods. "It is difficult to find a worse set of circumstances for a country, much less for a bondholder," the executive said in the report.