Franklin Templeton, whose contrarian bets made profits in Ireland and face losses in war-torn Ukraine, has been buying debt in Malaysia as global funds flee.
The San Mateo, California-based money manager, which oversees about US$855 billion (S$1.2 trillion), has over the past two years become the largest holder of Malaysian government local-currency bonds due in the next 30 months, among funds that make their quarterly filings public, data compiled by Bloomberg shows.
Its various funds added an aggregate RM9.64 billion (S$3.25 billion) this year to holdings maturing from next month to February 2018, bringing the firm's total claim to RM23.1 billion, the data shows.
Malaysia's currency and bonds are slumping as probes into donations to Prime Minister Najib Razak cloud the outlook for an economy rocked by plunging oil prices and a sell-off in emerging markets. PineBridge Investments said this month it recently trimmed Malaysian sovereign bonds, and the cost to insure the debt has soared amid the scandal surrounding state investment firm 1Malaysia Development Berhad (1MDB).
"While the Malaysian market has come under extreme stress, we still believe in the long-term value of our investment in the country," said Mr Michael Hasenstab, chief investment officer at Templeton Global Macro, which oversaw more than US$170 billion as of June 30. The Malaysian economy is "far stronger today than it was" during either the 2008 global financial crisis or the Asian crisis of the late 1990s, he said.
LONG-TERM VIEW STILL POSITIVE
While the Malaysian market has come under extreme stress, we still believe in the long-term value of our investment in the country.
MR MICHAEL HASENSTAB, Templeton Global Macro's chief investment officer
Mr Hasenstab's bold trades have helped him become one of the world's most successful bond fund managers. He helped trigger a turnaround in sentiment for Ireland - and made billions of dollars - by buying the nation's debt in July 2011, eight months after the country entered into an international bailout.
Templeton started to build its position in Malaysian local government bonds more aggressively at the beginning of the year, according to Bloomberg data. The asset manager's biggest exposure is to notes due next month, of which its funds own about 64 per cent. The fund data compiled by Bloomberg is based on numbers for periods ended either June 30 or July 31, depending on each fund's reporting timetable.
The Templeton Global Bond Fund, managed by Mr Hasenstab, has had an average annual return of 7.3 per cent over the ten years ended July 31 and a loss, including reinvested dividends, of 1.48 per cent this year through July, the firm said. In net asset value terms, it has fallen 6.2 per cent this year, according Bloomberg data.
Both Moody's Investors Service and Standard & Poor's are standing by their respective A3- and A-ratings on Malaysia as they expect the government to stay on course with its reforms.
The yield on Malaysia's five-year government bond rose to a more than six-year high of 4.05 per cent on Monday last week, and ended the week at 4.03 per cent. The cost of protecting the country's debt against non-payment rose to 189 basis points last Friday, the highest since October 2011.
The ringgit has slumped 17 per cent this year against the US dollar, the worst performing Asian currency after Myanmar's.
"We believe the current movement in the exchange rate has overshot fundamental value," Mr Hasenstab said.