CHICAGO – Michael Hasenstab of Franklin Templeton Investments says he takes on emerging markets one country at a time.

Hasenstab, a portfolio manager at Franklin and the keynote speaker at the Morningstar Investment Conference this week, says it’s time to give up on the market’s more traditional approach of lumping emerging market countries together.

“When we think about the world today, emerging markets now have such an increased dominance in terms of the global economy (and) their effect on global markets. These markets themselves have really emerged to be exciting new sources of liquidity and opportunity that they were never before,” says Hasenstab.

The fund manager’s research has found that emerging markets no longer act in isolation. “The market seems to move between extremes,” he says. “Massive pessimism, extreme optimism, almost at will over every six-month period. And we think both those extremes are probably very dangerous.”

Hasenstab says approaching today’s emerging markets requires a step back to understand the real opportunities and determine what drives performance, especially over the next five years when “huge changes” in global central bank policy are expected. Lumping emerging markets together, he says, has become ineffective, and lacks in empirical data.

“These countries are not uniform. What is happening in Turkey, and what is happening in Korea, is night and day,” he says. “Yet often the marketplace treats these assets together, and is either bullish on all of them, or bearish on all of them, and has some misperception that they all move in the same direction.”

“Talking about the emerging markets in uniform absolutely makes no sense,” he says.

Hasenstab used Hungary as one example. His research finds Hungary to be the best performing emerging market, and Indonesia the worst. “Look at the variance between the best and worst performing markets. It’s over 40 percentage points between Hungary and Indonesia,” he says.

Advisor Laszlo Saska of Rakos Invest in Zsambek, Hungary, said Hasentab was spot on taking a closer look at his homeland.  

“He’s become the biggest buyer of Hungarian debt,” says Saska, who heard the keynote speaker. “Via his bond fund, I think he’s controlling about 10 to 20% of the overall Hungarian state budget.”

Hasenstab, who manages the Templeton Global Bond A fund, took deep looks at several emerging market countries and how they weathered volatility.

“Hungary, Poland, Korea, Mexico… There were periods, especially in July and August, when they were under severe pressure,” he says. “But by the end of the year, as the market began to normalize, the good countries, the ones with solid fundamentals, actually performed quite well, and those that had serious vulnerabilities, places like Turkey and South Africa, remained depressed.”

His digging-in approach is based on underlying differences among the countries, but his team also maps out common macro-economic conditions, alongside market performance.

Advisor Gina Gladwell of Invest Financial, and who is based in Eau Claire, Wisc., also heard Hasenstab and says she’s glad he’s advocating for the approach. She says she has a similar mind-set. “I’m looking at each individual country, and I’m being picky and choosy,” she says.