CHICAGO (Reuters) - Michael Hasenstab, who runs the $57 billion Templeton Global Bond Fund , said on Wednesday that the European debt crisis is a "blessing in disguise" and criticized the dollar as a safe haven.
Speaking at the 2012 Morningstar Investment Conference in Chicago, Hasenstab said the European debt crisis has revealed that Europe suffers from not having a fiscal union and from a "lack of competitiveness and convergence" between its countries.
Hasenstab added that overcoming the euro zone crisis is "going to be messy, but it's not Armageddon." Italy needs to focus on structural reforms since a credit event in the country is a key danger.
In an interview, Hasenstab said the "big fear" is still Greece.
"I think the big fear is just the financial contagion from Greece and everything about banking and about debt markets is confidence," he said. "So I think that is the fear - that even though, fundamentally, Italy is solvent, Spain is solvent, you have enough bad confidence, you can turn a solvent situation insolvent."
He said policymakers "need to err on the side of doing too much" to establish a fiscal union.
The recent recapitalization of Spain's banks was one "tangible" action toward resolving that country's debt problem, Hasenstab told Reuters and added that it "should've been better perceived" by the markets.
Hasenstab said investing in the United States, particularly Treasuries, is a "curse" given the excessive credit in the country through monetary easing, which heightens inflation risk.
The U.S. Federal Reserve delivered another round of monetary stimulus on Wednesday and said it was ready to do even more to help an increasingly fragile U.S. economic recovery.
The central bank expanded its "Operation Twist" by $267 billion, meaning it will sell that amount of short-term securities to buy longer-term ones to keep long-term borrowing costs down. The program, which was due to expire this month, will now run through the end of the year.
Average annual returns over the last 10 years for Hasenstab's Templeton Global Bond fund are 10.65 percent, putting it among the top 1 percent of the U.S. open-end world bond fund category, according to Morningstar.
On China, Hasenstab said a severe downturn in the country is a key concern, but that a "major policy error" is unlikely.
Hasenstab also said the economies of Malaysia, Indonesia and Singapore benefit from not printing money and, as a result, do not suffer from excess credit. He also said they have low debt levels.
Hasenstab also favors South Korea since its debt to GDP is less than 30 percent, offers a "decently high yield" and has growth that is "a lot stronger than everywhere else," he told Reuters.
(Reporting by Sam Forgione; editing by Phil Berlowitz and Andre Grenon)
