What Franklin Templeton Thinks...

1Q 2020

What Franklin Templeton Thinks

…About GLOBAL GROWTH & VOLATILITY

Uncertainty Yes, Recession No.

  • We recognise the world faces uncertainty. But we focus on hard data, and we see few signs the global economy is headed toward recession.
  • The world’s largest economy, the United States, remains on steady footing. This despite persistent trade uncertainty and a contentious political environment.
  • Of course, risk factors remain, like weaker manufacturing activity, declining business sentiment, trade tensions, and rising political polarisation.
  • Because of these risks, we see opportunity in 2020. Investors should be selective and ready to take advantage of potential market shocks as well as focus on true portfolio diversification.

…About EMERGING MARKETS

Changing Landscape in 2020

  • Being selective by country and security is particularly important.
  • Emerging market growth is forecast by the International Monetary Fund to accelerate in 2020 and remain more than double that of developed markets. Improving fiscal, economic and monetary policies and a renewed focus on structural reforms in many emerging markets has been gaining traction.
  • In terms of emerging market debt, events in developed markets will be key in terms of volatility in 2020.

…About US EQUITIES

US Growth Remains Strong

  • Despite ongoing trade tensions, growth in the US remains stronger than in other developed markets.
  • Attention will likely focus on valuations, pressure on margins and whether the US Fed rate cuts meet expectations and boost growth.
  • We think the US economy can continue to grow in a range of 2%-3% a year for much longer than many believe. We base this view on two main factors: consumer strength and corporate earnings.

…About CURRENCY

Hedge Against The Unexpected

  • A net-negative position in the euro can serve as a macro hedge against a broadly strengthening US dollar and as a directional view on the currency.
  • We expect the euro to weaken based on rate differentials and growth divergence between Europe and the US. Additionally, the European Central Bank has turned back to aggressive monetary easing by re-starting its Quantitative Easing program.
  • A net-negative positioning in the Australian dollar may serve to hedge broad emerging market beta risk, as the currency shows strong positive correlation with emerging market currencies due to shared risk factors, such as linkages to China’s economy and commodity markets.
  • Long exposures to perceived safe-haven currencies such as the Japanese yen, Norwegian krone and Swedish krona may hedge against bouts of global risk aversion and provide some upside.

…About TECH DISRUPTION

Digital Transformation to Remain Resilient

We are optimistic about multi-year digital transformation spending, as enterprises need to continue these initiatives or risk disruption.

  • Business aligned with digital transformation fall into categories like artificial intelligence, cloud computing, data science, cybersecurity and fintech.
  • China will be a frontrunner in the 5G arena together with artificial intelligence (AI) and robotics. This will help drive growth in China’s new economy as it strives to become less reliant on the United States.

Key Investment Ideas

PREVAILING THEMESRationaleWAYS TO GAIN EXPOSURE

Technology Spending Will Continue

Companies in all sectors are investing in technology to stay ahead of the digital disruptors in their markets. Leading technology companies are listed in the US.

Franklin Technology Strategy

Franklin U.S Opportunities Fund
US Growth Remains Strong US growth remains stronger than in other developed markets. The emphasis should be on bottom-up security selection. Franklin U.S. Opportunities Fund
Portfolio Diversifiers in Times of Uncertainty Multi-asset solutions are generally designed to provide a source of diversification to traditional asset classes to help investment portfolios weather market volatilities. Franklin NextStep Balanced Growth Fund

Franklin NextStep Dynamic Growth Fund
Selectivity Needed for EM Opportunities There remains a subset of countries with relatively strong domestic economies that have demonstrated their resiliencies to global shocks, including potential trade disruptions. Templeton Asian Smaller Companies Fund
Hedge Against The Unexpected Uncertainty will dominate the market this year. Hedges against developed and emerging markets risk coupled with long exposures to perceived safe-haven make sense. Templeton Global Total Return Fund