Templeton's Hasenstab defends Hungarian debt position

Franklin Templeton Investments' Michael Hasenstab has defended his Hungarian debt position amid reports the group owns 10% of the country's local bond market.

His response comes in a week which saw Hungarian government bond yields soar above 10% after the government cancelled part of its debt auction, although the remaining debt up for grabs failed to raise the targeted 45bn forint.

Hasenstab said he is not concerned about the recent volatility in the region, adding the country has "healthy liquidity buffers".

In December, Investment Week followed up a report in a Hungarian business newspaper which said 10% of Hungary's local bond market is owned by Franklin Templeton Investments.

The group's $61bn Templeton Global Bond fund, run by Hasenstab, has a 4.3% exposure to Hungary, translating to $2.6bn, while the $494m Templeton Emerging Markets Bond fund has a 6.4% allocation, or $31m.

Franklin Templeton refused to confirm whether the 10% figure is accurate.

However, Hasenstab said: "Hungarian debt holdings represent an important but comparatively small percentage of exposure across our funds and the funds are very diversified across more than 20 different countries and over 20 different currencies.

"Notwithstanding recent volatility, we expect Hungary's relatively sound fundamentals to reassert themselves.

"These markets can be volatile in the short term and have been so due to political noise, but Hungary has a strong capacity to repay its debt especially given its healthy liquidity buffers and reasonable solvency metrics."

Fears the country will be the first in Europe to default on its debt have intensified following the cancellation of part of the debt auction, where old debt would be swapped for new, and only 35bn forint was raised for a 45bn forint 12-month debt auction this week.

It was thought the action to cancel the auction would further jeopardise talks with the EU and IMF, which are set to meet with Hungary next week to discuss a rescue package.

The Hungarian government, led by Viktor Orban, has already fallen out with the EU and IMF over a law curbing the independence of the central bank.

The currency sank more than 1% yesterday to a new low against the euro but rallied this morning.

Hungary needs to roll over nearly €5bn of external debt this year, and in February is due to start repaying a loan from the IMF that saved the country from collapse in 2008.