Argentina turmoil batters big names in bond market

Funds run by Franklin Templeton’s Michael Hasenstab, who made his name profiting on Irish bonds, lose $1.2bn

One of the bond market’s biggest investors has seen its flagship funds battered by the turmoil in emerging markets unleashed by Argentina’s spiralling financial crisis.

Losses at Franklin Templeton, the US investment group, have underlined how the crisis has wrongfooted many of the market’s best-known names and left investors wary of diving back in.

This is despite talks on Tuesday between Buenos Aires and the IMF over a revised $50bn bailout package.

Franklin Templeton funds have lost $1.23 billion in the past two weeks on just three of its biggest Argentine positions, according to FT calculations.Most of Franklin Templeton's Argentine bets have been directed by Michael Hasenstab, who has often profited by piling into the debts of distressed countries such as Ireland. However, his flagship $36.8bn Global Bond Fund lost 4.2 per cent in August, according to Bloomberg data, while his $5.4bn Global Total Return Fund dropped 4.3 per cent — the worst month for both funds in nearly four years.


Argentina, which increased interest rates last week by 15 percentage points to 60 per cent, emerged as one of the hottest stories in emerging markets two years ago after the centre-right reformist Mauricio Macri came to power.

But with the currency losing more than half its value this year, fund managers are cautious about becoming even more heavily exposed.

Standard & Poor’s on Friday warned that it could downgrade Argentina’s credit rating further on fears that the peso’s nosedive could jeopardise the government’s economic programme.

“Until there is something tangible, people would rather miss the first part of the rally than try to catch a falling knife,” said Federico Kaune, head of emerging market debt at UBS Asset Management. “People have been burnt by Argentina several times already.”

Mr Hasenstab is not alone in being wrongfooted by Argentina’s crisis. Pimco is listed as the country’s biggest bondholder with $5.3bn worth of positions at the end of March, according to Bloomberg.

BlackRock, Goldman Sachs Asset Management and Fidelity complete the five biggest creditors.Franklin Templeton arranged a $2.25bn bond sale in May as Argentina's crisis began to mount, which Mr Hasenstab's funds bought in their entirety.

By the end of June Franklin Templeton held about $4.6bn of Argentine bonds, according to fund filings.

The fact that so many investors are already heavily exposed limits how many will be willing to dip back in, said Edwin Gutierrez, head of EM sovereign debt at Aberdeen Standard Investments.“This is not a benign world and the willingness of foreign investors to finance Argentina is minimal considering most of us are long,” he said. “It’s very difficult to find a marginal buyer.”

Franklin Templeton declined to comment.– Copyright The Financial Times Limited 2018.