LONDON Dec 1 The negative effects on the
Mexican peso from potential trade restrictions have been
excessively priced in by markets and do not reflect fair value,
Michael Hasenstab, chief investment officer of Templeton Global
Macro, said on Thursday.
Emerging markets reacted negatively after Donald Trump's
election as U.S. president, but the peso bore the brunt of the
selling given Trump's campaign rhetoric on trade tariffs,
immigration and border walls.
Hasenstab, who made his name with audacious bets on Irish
and Hungarian bonds, among others, argued that any restrictions
imposed by Trump would not end trade between the United States
and Mexico, given that many of the largest U.S. corporations
have integrated Mexican production into their supply chains.
This complicates the ability of any administration to
significantly reduce trade between the two countries, even with
an imposition of tariffs, he said.
"We expect a recovery in the peso as the country's central
bank continues to use policy to strengthen the currency and
markets adjust to the underlying fair value," he said.
He also has positive outlooks on several local currency
exposures in other emerging markets he views as undervalued -
notably Brazil, Argentina, Colombia, Indonesia and Malaysia.
"A number of EMs have already weathered severe shocks over
the last year and appear far more resilient to potential
increases in trade costs at the margin than markets have
indicated," he said.
If the incoming U.S. administration does impose trade
restrictions and tariffs, this would drive up the costs of goods
in the United States.
He expects U.S. inflation to rise above 3.0 percent in early
2017 as the base effects from last year's decline in oil prices
fall out of the figures and government spending increases.
(Reporting by Claire Milhench and Karin Strohecker, editing by