We recognize investment opportunities may be more divergent as markets exit an unprecedented era of financial market distortion. Some previously overlooked countries or asset classes may lead to a Cinderella story. Our senior investment leaders share why they are optimistic about the year ahead and where they see opportunities.
Ed Perks: The global economy holds the potential to maintain solid momentum in 2019, in our view, underpinned by the strength of US fundamentals and demand. Volatility returned to global financial markets in 2018 as the narrative around synchronized global growth became more pessimistic. However, growth trends remain broadly positive and desynchronization might not be the headwind that markets may have feared at times
Stephen Dover: The year ahead looks to be one of restrained global equity market performance. As the benefits of substantial fiscal stimulus from US tax cuts and greater public spending wane, US earnings and the broader global economy may have a hard time keeping pace with 2018 levels. However, we see opportunities outside the United States as earnings and economic disparities with the United States narrow.
Michael Hasenstab: Overall, we think it’s important to recognize that the state of the world that investors have become accustomed to for the last decade is not going to continue indefinitely. In 2019, we expect US Treasury yields to rise and various asset classes to endure price corrections as monetary accommodation unwinds.
Our take: In the United States, the current combination of above-trend growth, benign inflation and near-full employment could continue for some time, in our view. We believe the prospects for a US recession are still several quarters away. Learn more in our topic paper.
Stephen Dover: We see opportunities beginning to emerge in many unloved areas of the global equity markets. While headline rhetoric about the trade war’s impact on the Chinese economy has made many investors wary of Chinese equities, we believe growth in China is driven more by domestic consumption than trade these days.
Latin America also offers new promise. The election of Jair Bolsonaro as Brazil’s new president suggests to us a return to more orthodox economic policies, despite some of his more extreme political rhetoric.
Our take: While the easy gains for global equities look to be over as growth rates in the United States moderate and geopolitical and trade issues persist, a rising-rate environment can lead to a shift in leadership as unloved stocks and regions begin to draw renewed interest. Learn more in our topic paper.
Michael Hasenstab: A decade after the global financial crisis peaked in 2008, financial markets have only just begun to correct the asset price distortions that were created by the US Federal Reserve’s (Fed’s) massive quantitative easing (QE) program. QE was originally deployed to stabilize financial markets during the crisis, but instead of being a limited intervention to restore markets over a few years, it expanded and became an ongoing endeavor.
It succeeded in pushing down bond yields and pushing up asset prices, steering many investors toward riskier assets while also keeping the costs of capital artificially suppressed. But continuous QE also led to ongoing price distortions in bonds and equities, while incentivizing leverage and rewarding complacency among investors who appeared to view persistently low yields and the Fed’s “buyer of last resort” role as a permanent arrangement.
Our take: Investors that are not prepared for concurrent price corrections in US Treasuries (USTs) and other asset classes in 2019 may be exposed to unintended risks. Learn more in our topic paper.
Head of Equities
Chief Investment Officer,
Templeton Global Macro
Chief Investment Officer,
Franklin Templeton Multi-Asset Solutions
Read the complete 2019 outlook
Please sign in to download.
2019 CAPITAL MARKETS EXPECTATIONS: Supportive environment for asset returns
ALLOCATION VIEWS DECEMBER 2018: Taking solace from the longer outlook
What Are the Risks?
All investments involve risks, including possible loss of principal. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds adjust to a rise in interest rates, the share price may decline. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging market countries involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Such investments could experience significant price volatility in any given year.
Important Legal Information
The information provided is not a complete analysis of every material fact regarding any country, region, or market. Comments, opinions and analyses contained herein are those of the speaker and are for informational purposes only. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of December 5, 2018, and may change without notice. The analysis and opinions expressed herein may differ or be contrary to those expressed by other business areas, portfolio managers or investment management teams at Franklin Templeton Investments. Opinions are intended to provide insight on macroeconomic issues and commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.
For US Residents Only