- “One of the main factors that we look at throughout emerging markets and the developed markets, take Italy for example, is the rise of populism leading to irresponsible fiscal policy. Probably one of the most important political variables we have to look at,” said Michael Hasenstab, chief investment officer at Templeton Global Macro.
- He took a positive view of emerging economies India and Indonesia — despite their current account deficits and struggling currencies — saying they are still “the type of investment we are looking for.”
“Irresponsible fiscal policy” is on the rise as governments increasingly try to appeal to angry voters, according to a chief investment officer overseeing international macroeconomic trends.
Speaking with CNBC on Tuesday, Michael Hasenstab, chief investment officer at Templeton Global Macro, a unit under Franklin Templeton Investments, called the trend a response to populism — a term with varied definitions — and emphasized that political risk had become a pressing investment consideration.
“One of the main factors that we look at throughout emerging markets and the developed markets, take Italy for example, is the rise of populism leading to irresponsible fiscal policy. Probably one of the most important political variables we have to look at,” Hasenstab told CNBC’s “Squawk Box.”
He added, though, that such trends are not present everywhere, and “that creates an opportunity to look at the politics, and identify those countries that are not on that deteriorating path.”
A new government took power in Italy this year led by a coalition formed by the anti-establishment Five Star Movement and the right-wing League party. It pledged to embark on tax cuts, guaranteed basic monthly wages for the poor, and committed to other spending in the already-debt-ridden country.
Germany’s mainstream political parties, for their part, have been under pressure from a rising challenge from the far-right. The country’s government recently set out measures to tackle a drastic shortage of affordable housing, a problem that detractors have argued was caused by an influx of migrants.
India and Indonesia have ‘long-term anchors’
India and Indonesia might be two economies with current account deficits and struggling currencies, but Hasenstab said that they are still “the type of investment we are looking for.”
India’s current account deficit, which measures the flow of goods, services and investments into and out of the country, has largely been affected by rising oil prices because it is a major importer of crude. The current account deficit of India, Asia’s third-largest economy, widened to $15.8 billion, or 2.4 percent of its gross domestic product, in the April to June quarter.
Tuan Huynh, Deutsche Bank Wealth Management’s chief investment officer for Asia Pacific, wrote in a recent report that Indonesia’s current account deficit “makes it prone to a funding crisis.” He noted that its deficit widened to $2 billion in July, the largest monthly deficit since July 2013.
Meanwhile, both the Indian rupee and Indonesian rupiah have recently dipped to new record lows as emerging markets around the globe took a dip on concerns spurred by troubles in Turkey and Argentina.
Yet despite those data points, Hasenstab expressed optimism.
“We still have a very long-term positive view for both India and Indonesia. And we talk about a current account deficit, but really, both of those countries have dealt with oil at a higher price,” he said. “Both countries are pursuing some very sound, be it fiscal policy, or in India’s case, really revamping the monetary system … inflation targeting, tax reform.”
In fact, Hasenstab said, many of those issues for India may negatively impact growth in the short term, but they will ultimately benefit the country’s economy.
“That’s the type of investment we are looking for. It’s okay in the short term if there are some hiccups, if the long-term anchors are there, ” he said. “And I think both India and Indonesia have that long-term anchor.”