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Title Speaker Date

Dr. Michael Hasenstab: Why We Think the Markets are Overreacting

Aug 25, 2015

Featuring:  Dr. Michael Hasenstab, Executive Vice President, Portfolio Manager, Chief Investment Officer, Templeton Global Macro

  • Over the last couple of weeks, markets have turned into a complete panic mode, and I think it is important, in all periods of volatility, to take a step back and understand what is justifiable and what is an overreaction.
  • We are approaching levels in some of the emerging market currencies that we have not seen since the mid- or late 1990s when conditions were far more dire.
  • As we take a step back and look at the sequence of what got us to this point, it’s important to recognize a couple of catalysts, and a lot of those are emanating from China.
  • China made a very small, in the global scope of currency movements, adjustment right around 5%. In the magnitude of what has been a long appreciation in the currency it is a fairly modest move to more accurately reflect some of the capital outflows that have been leaving China.
  • We don’t think it’s the beginning of a massive devaluation of the Chinese yuan.
  • What is more important is to understand is why they are moving to more of a flexible exchange rate and this has to do with a multi-year plan to internationalize the yuan and make it one of the top three leading global currencies. In order to do that the currency needs to be free floating and so this was a move in that direction.
  • We think there’s a rebalancing in the Chinese economy, it’s uneven, it’s causing some ripple effects in certain financial markets, but in aggregate we think the Chinese economy is on a sound footing.
  • We understand that this last month has been volatile; there’s some significant downward pressure on a lot of financial assets, but we think this is a tremendous opportunity because we believe the panic is not rooted in underlying fundamentals and we actually think, while the global environment isn’t perfect, it’s nowhere near where the markets are pricing in.
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Important Legal Information

The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of August 25, 2015, and may change without notice. A portfolio manager’s assessment of a particular security, investment or strategy 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; it is intended only to provide insight into the fund’s portfolio selection process. Holdings are subject to change. Investments involve risks. The value of investments can go down as well as up, and investors may not get back the full amount invested.

What Are the Risks?
All investments involve risks, including possible loss of principal.

Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, 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. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Currency rates may fluctuate significantly over short periods of time and can reduce returns. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline.

For more information on any of our funds, contact your financial advisor or download a free prospectus. Investors should carefully consider a fund’s investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.

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