What Franklin Templeton Thinks...

3Q 2019

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What Franklin Templeton Thinks

…About TRADE DISPUTES & TARIFFS

Slow and Less Steady?

  • Escalating trade rhetoric between the United States and China likely to present a headwind to business investment and increases uncertainty.
  • Long-term impact may be current and future US administrations will fear China.
  • A return to long-run levels of market volatility rather than muted levels seen for much of the past 10 years.

…About EMERGING MARKETS

Be Selective

  • In terms of emerging market debt, select local-currency markets show some of the highest levels of undervaluation across the global fixed income markets. However, it remains crucial to be selective given continued fears over protectionism and geopolitics.
  • There are select countries are less externally vulnerable and more domestically driven and have orthodox fiscal and monetary policies.
  • Trade dispute is not a lose-lose in emerging markets as other countries and companies are able to participate in existing supply chains as tensions intensify.
  • Improved corporate governance across the EM countries is seen as a structural driver for EM equity improvement.

…About US EQUITIES

Despite Headwinds, Growth Remains Strong

  • Despite ongoing trade tensions, growth remains stronger than in other developed markets, with tax reforms still providing a bit of a tailwind for earnings.
  • Attention now turns to corporate earnings growth, margins and Fed policy developments.

…About INTEREST RATES

Global Trend Still Toward Accommodation

  • ECB President Mario Draghi continued to indicate rate adjustments are unlikely through the first half of 2020 and the ECB stands ready to use appropriate tools to support growth and move inflation closer to target.
  • Similarly, the BOJ is not in a position to pull back on its current level of monetary accommodation. We expect current levels to continue through the spring of 2020, a timeline recently indicated by Kuroda, with an ongoing 0.0% yield target on the 10-year Japanese government bond.
  • In the US the only certainty is uncertainty. The market is pricing a cut in the next few months, but economic data doesn’t necessarily support this stance. Generally, risk assets have behaved as if easy monetary conditions are on the horizon, but that may not be the case.

…About CURRENCY

So Goes the US Dollar…

  • We expect the euro to weaken against the US dollar given the differences in projected growth and the rate differentials between the US and the eurozone.
  • Short Australian Dollar may hedge broad-based beta risk across emerging markets.
  • Expectations for the Japanese Yen have improved and a long position may be a good macro hedge for a risk off environment.

…About TECH DISRUPTIONS

Big Tech Blurs With Fintech

  • We expect the lines between financial services and Big Technology companies, such as Amazon, Apple and Google, to continue to blur. We believe payment services hold the key—helping consumers simplify and streamline their lives while offering companies data about where and when consumers spend their money.
  • Advancements in digital experiences, artificial intelligence and distributed ledger technology are the catalysts to new fintech services. All enable companies to better meet consumers’ specific demands for service and support.

Key Investment Ideas

PREVAILING THEMESRationaleWAYS TO GAIN EXPOSURE
Big Tech Blurs With Fintech Advancements in digital experiences, artificial intelligence and distributed ledger enable companies to better meet consumers’ specific demands for service and support. Franklin Technology Fund
Franklin U.S. Opportunities Fund
US Growth Remains Strong US growth remains stronger than in other developed markets, with tax reforms still providing tailwind for earnings. Franklin U.S. Opportunities Fund
Defensive Strategy in Times of Uncertainty With clear signs of lower growth and volatility returning, hedge strategies could provide good defense. Franklin K2 Alternative Strategies Fund
Selectivity Needed for EM Opportunities There are a subset of EM countries with relatively strong domestic economies that have demonstrated their resiliencies to global shocks. Templeton Asian Smaller Companies Fund
Templeton Emerging Markets Fund
Templeton Emerging Markets Balanced Fund
Templeton Emerging Markets Bond Fund
Templeton Emerging Markets Smaller Companies Fund
Templeton Global Bond Fund
Templeton Global Total Return Fund
Uncorrelated Global Fixed Income Assets Idiosyncratic opportunities come in specific countries better positioned for trade disruptions, commodity price volatility and rising rates. Templeton Global Bond Fund
Templeton Global Total Return Fund