US bond guru Michael Hasenstab, whose funds made billions snapping up Irish debt at the height of the financial crisis, sees risks of the euro falling to parity against the dollar and countries exiting the single currency after Brexit.
Mr Hasenstab, manager of Franklin Templeton’s global bond and total return funds, which at one stage held about 10 per cent of Irish bonds, made the comments on a call recently with investors and analysts. Goodbody Stockbrokers reported on details of the call in a note to clients of its wealth management division.
The California-based fund manager told participants on the call that he sees a realistic possibility of the euro depreciating to reach $1, according to the note. That hasn’t been seen since late 2002. The euro has fallen by 2.5 per cent since the UK voted to leave the EU last month, to $1.11. It traded as high as almost $1.60 in 2008.
A weaker euro would make it more dollar-denominated fuel and travel to the US and other countries that peg their currencies to the dollar more expensive for Europeans. However, it could boost European exports and inward tourism.
Mr Hasenstab's comments on a potential break-up of the current 19-member euro zone were first expressed in a video posted on the Franklin Templeton website immediately after the UK referendum. He said the Brexit vote may encourage nationalist movements in Europe.
His views contrast with those held in 2011 when he started to aggressively build up his position in Irish debt, when the yields on Ireland’s 10 year bonds were hovering around all-time highs at more than 14 per cent. At the time, he believed that the political will was there to hold the euro area together.
The two Franklin Templeton funds began in 2014 to sell down their then almost $11 billion (€9.9 billion) of Irish government bonds. Mr Hasenstab said earlier this year he had exited his final positions in the country’s debt earlier this eyar.
Meanwhile, Fitch, one of the world’s leading credit rating agencies, said on Tuesday that the UK referendum will add to political uncertainty in Europe.
“Formal exit negotiations with the UK have yet to start and could open up more disagreements,” said Fitch. “We expect the referendum outcome to boost support for more radical, populist parties. This will reduce government’s willingness to implement unpopular economic reforms, while we are sceptical that there is political willingness to deepen EU or eurozone integration in response to Brexit.”