The recent selloff in emerging-market assets, including Mexico and Malaysia’s currencies, has opened up investment opportunities not seen for decades, according to Franklin Templeton’s Michael Hasenstab, who’s well known for making contrarian bets.

“On a valuation basis, this is not a once-a-decade, this is a multi-decade opportunity to be buying very cheap assets,” Hasenstab, who oversees 30 funds with $143 billion in assets, said in an interview posted on YouTube Monday. “We are not buying everything,” but “there are a handful that have been caught up in the turmoil that we think are diamonds in the rough,” he said.

The San Mateo, California-based money manager said he’s buying the Mexican peso, Malaysian ringgit and Indonesian rupiah, while avoiding assets in Turkey, South Africa and Russia. He’s also betting on an increase in U.S. Treasury yields and sees the dollar strengthening against the euro, yen and the Australian currency.

Hasenstab, an avid mountaineer who climbed Mount Everest, is doubling down on emerging markets after a slowdown in China’s growth rate, a slump in commodities and the prospect for an increase in U.S. interest rates roiled markets from Brazil to Malaysia. Emerging markets are set to record the first net capital outflow since 1988, the Institute of International Finance estimated last week.

David Fuller's view

Well, he is presumably used to market peaks and now feels that we are back down at base camp levels.

Here are the three currencies that he is buying, shown inversely against the US Dollar: 1) The Mexican peso fell from 13MXN a year ago to 17MXN in August.  The upward acceleration has been climactic for at least the short term and the USD has not maintained rallies above 17MXN to date.  2) Similarly, the Malaysian ringgit has slumped from 3.23MYR to over 4.4MYR in what looks like a climactic move that is now losing consistency.  3) Lastly, the Indonesian rupiah’s accelerated slump also looks climactic and the first two days of this week show a significant dynamic, indicated that IDR has bottomed for at least the near term. 

In conclusion, Hasenstab is now buying what everyone else has been selling over the last year, so his contrarian trade should be good for at least the short to medium term.