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Hasenstab: Europe has averted 'Lehman Two'

Markets have gone 'way too far' in their reaction to the eurozone crisis says Templeton’s bond star - but further QE will ensure Asia will win out. 

 
Hasenstab: Europe has averted 'Lehman Two'

Europe has 'avoided Lehmans Two'

 

European politicians have averted a second Lehman-like event despite markets overstating the extent of the debt difficulties, Franklin Templeton’s Michael Hasenstab has said.

Discussing his current outlook, Templeton Global Bond fund manager Hasenstab praised the steps taken by eurozone leaders to address the debt difficulties, especially the important step of no longer denying Greece is insolvent.

Acknowledging the challenges ahead, Hasenstab said Franklin Templeton had operated on a basis of conditions being bad but was seemingly shocked by how markets had reacted to on-going difficulties in the region.

Market 'pricing in' German exit

He said: ‘I think that point about low expectations was central to our investment thesis, which was: conditions in Europe are going to be bad but they are not as bad as the market was pricing.’

‘And, the market was pricing in not only [that] Greece would default but Italy would default; that there would be systemic banking crisis, that Germany would leave the Eurozone or it would splinter apart and I think that was going way too far.’

Hasenstab said measures now in place, such as haircuts on Greek debt and a strengthening of the ECB, would help prevent contagion spreading from Greece to other fragile European nations, such as Spain and Italy.

‘We’ve taken that first step, moving away from denial, setting up a ring-fence, acknowledgement of a Greek restructuring and moving forward on providing liquidity to the banking sector to prevent a Lehman two event.’

Irish debt opportunities

At the height of the difficulties, Hasenstab revealed he was investigating opportunities in Irish debt. In this outlook, he said Asian currencies, Scandinavian currencies, corporate credit and emerging market sovereign credit were now attractive prospects.

On the topic of Asia, Hasenstab said countries in this region were liable to benefit from any quantitative easing policies introduced in Europe or the United States, which would underpin their attractiveness as areas of investment.

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