JOHANNESBURG - Franklin Templeton’s debt chief is developing a taste for bonds of sub-Saharan Africa.
Michael Hasenstab has been building positions in local currency debt of Ghana and South Africa since the fourth quarter of last year, in the flagship $40billion Templeton Global Bond Fund he helps manage.
The investments are the first for the fund in the region in more than four years, according to data compiled by Bloomberg. Interest from big investors like Franklin Templeton is a boon for the region’s biggest economies as they recover from a commodity-price slump that drained reserves and pushed up borrowing costs.
Hasenstab’s fund is known for making big bets on countries or regions that others prefer to avoid, often leading the way for other investors. As of September 30, the fund held 1.8percent of its holdings in Ghana and 1.6 percent in South Africa, according to filings. Those holdings have generated a 10percent return this year, helping the fund beat 66percent of its peers.
A spokesperson for the fund declined to comment on its latest investments. The majority of bonds sold in Ghana’s March 31 sale of 2.25 billion local currency bonds went to Templeton and the yield on the notes has since dropped 165 basis points to 18.16percent. The US fund manager now owns about a fifth of Ghana’s debt.
Ghana’s currency, the cedi, has dropped 3.4percent this year after a 9percent drop last year.
Hasenstab already has a 26percent position in bonds of Africa and the Middle East in the $8.2bn Templeton merging Markets Bond Fund he co-manages, with Ghana making up the biggest African country holding, according to data compiled by Bloomberg. In a 2014 blog post, he said the Franklin Templeton Fixed Income Group had become interested in sub- Saharan Africa amid increasing political stability and "a blossoming” private sector.
Templeton isn’t alone in his bid to prospect for opportunities in African bond markets. Stone Harbor Investment Partners’s Jim Craige said last month he’s buying dollar-denominated debt from Angola, Ghana, Gabon, Ivory Coast and Zambia, while paring holdings in Brazil and Mexico.
A sell-off in South African bonds yesterday showed how unpredictable markets on the continent are.
Benchmark yields hit the highest level in 16 months after Finance Minister Malusi Gigaba abandoned fiscal targets set by his predecessor, opting to try to borrow the way out of a widening budget deficit.