What Franklin Templeton Thinks...

4Q 2019

What Franklin Templeton Thinks

…About TRADE DISPUTES & VOLATILITY

Tariff Stress Spreading

  • With no clear path to a resolution, exchange rates appear to be the next battleground. Competitive devaluations could present a new aspect to the dispute.
  • 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.

…About EMERGING MARKETS

Be Selective

  • There remains a subset of countries with relatively strong domestic economies that have demonstrated their resiliencies to global shocks, including potential trade disruptions.
  • Within fixed income, we have become a bit more cautious on the broad outlook for emerging markets, but we continue to see scope for additional valuation strengthening in specific countries.
  • We look for countries that are going through positive structural transformations, while avoiding countries where policy is deteriorating.
  • From equity perspective, China is showing technology leadership and willingness to diversify outside of its own market.
  • Improved corporate governance across EM countries is seen as a secular structural driver for EM equity re-rating.

…About US EQUITIES

Bearish no… cautious yes

  • Despite ongoing trade tensions, growth remains stronger in US than in other developed markets, although earnings have dipped. The market will likely focus on valuations, pressure on margins and whether the US Fed rate cuts meet expectations and boost growth.
  • For now, the emphasis should remain on bottom-up security selection.

…About CURRENCY

Dollar strengthening…euro weakening

  • We continued to suggest a net-negative position in the euro 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.
  • We also continued to suggest net-negative positioning in the Australian dollar based on the Reserve Bank of Australia’s (RBA's) easing cycle, and as a partial hedge against trade risks and tail risks associated with China’s economy. A short Australian dollar position is intended to hedge broad-based beta risk across emerging markets.
  • The dovish shift in monetary policy by the US Fed combined with stable monetary policy from the Bank of Japan increases the potential for a strengthening trend in the Japanese yen against the US dollar.

…About TECH DISRUPTION

Big Tech Blurs With Fintech

  • We expect the lines between financial services and Big Technology companies, such as Amazon, Apple and Google1, 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 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

Templeton Global Total Return Fund