Templeton buys billions worth of Malaysian bonds as global funds flee

SINGAPORE (BLOOMBERG) - 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 US-based money manager, which oversees about US$855 billion(S$1.21 billion), 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 show. Several of its funds added an aggregate RM9.64 billion (S$3.24 billion) this year to holdings maturing from September 2015 to February 2018, bringing the firm's total claim to RM23.1 billion, the data show.

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 has recently trimmed Malaysian sovereign bonds and the cost to insure the debt has soared amid the scandal surrounding state investment company 1Malaysia Development Bhd.

"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 for global bonds at Franklin Templeton. "The Malaysian economy is far stronger today than it was" during either the global financial crisis of 2008 or the Asian crisis of the late 1990s, he said.

Malaysia's Finance Ministry did not immediately respond to requests for comment.

Mr Hasenstab met Ukraine's Finance Minister Natalie Jaresko earlier this month and is trying to avoid a 40 per cent cut to the billions of dollars in Ukrainian government debt his funds hold. 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, data compiled by Bloomberg show. 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 10 years ended July 31, the firm said. It has made a 6.2 per cent loss so far in 2015, according to data compiled by Bloomberg.

The yield on Malaysia's five-year government bond rose to a more than six-year high of 4.05 per cent on Aug 17 and ended last week at 4.03 per cent. The cost of protecting the country's debt against nonpayment rose to 189 basis points on Friday, the highest since October 2011.

The ringgit had slumped 16 per cent this year against the US dollar as of Friday, the worst performing Asian currency after Kazakhstan's and Myanmar's.

"We believe the current movement in the exchange rate has overshot fundamental value," Mr Hasenstab said.