Don't have an account?
Learn More -or- Register Now
Here's a helpful set of tools you can use to talk with clients now.
Learn moreDon't have an account?
Learn More -or- Register Now
Further volatility ahead for markets, but may be opportunities for active managers.
David Zahn, CFA, FRM,Head of European Fixed Income,Franklin Templeton Fixed Income Group®
Theresa May has survived a leadership challenge called by Eurosceptic members of her own party and will continue to lead the United Kingdom as it heads toward Brexit. But David Zahn, Franklin Templeton Fixed Income Group’s head of European Fixed Income, warns May’s troubles are not over yet. He predicts further volatility ahead for financial markets, but argues there may be opportunities for shrewd active managers.
Theresa May has clung on to power in the United Kingdom, having won a leadership challenge within her own party. But her position is precarious. And, we think the developments of the last two days have increased the chances of a Hard (or no-deal) Brexit.
Financial markets are likely to react to that development. We’d expect Gilts likely to rally, yields to decline and the pound to continue to weaken.
May’s main challenge continues to be securing support from members of parliament (MPs) for the Withdrawal Agreement she has negotiated with the European Union (EU). Her leadership victory doesn’t fix the problem that parliament doesn’t like her deal.
She has already postponed a parliamentary vote on the deal once, because of lack of support. We think she will need to obtain some further concessions from the EU if she is to get it past MPs.
The relatively small margin of May’s victory in the leadership challenge has significantly dented her mandate to negotiate the Brexit deal terms with Brussels.
Meanwhile, opposition parties in the House of Commons have threatened to table a vote of no confidence in her government. The narrowness of her leadership victory suggests she might struggle to win a confidence vote in parliament and that could lead to a general election early in the New Year.
We think Theresa May remaining as prime minister currently represents the best chance of the United Kingdom securing a Soft Brexit, in other words, leaving the EU with a negotiated settlement.
There would simply be no time for May’s successor to renegotiate a fresh deal with Brussels, so if she were to step down or be ousted we would expect the United Kingdom to leave the EU without a deal.
So in our view, May’s departure would likely have extremely negative consequences for markets.
Amid this uncertainty, markets will likely be quite skittish for some time, as investors wait for a potential challenge to May’s government and the possibility of a fresh general election and any last-ditch attempt at securing a deal.
Against such a background, we reiterate our view that it makes sense to be active in the management of fixed income portfolios.
Investors will likely have to react to news flow coming out from Westminster and Brussels.
It may well be difficult to read through the noise, but for those investors who can, we think there may be an opportunity to add value to their portfolios.
The comments, opinions and analyses presented here are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.
This information is intended for US residents only.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
All investments involve risks, including possible loss of principal. 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. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments.
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. All investments involve risks, including possible loss of principal.
Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments opinions and analyses in the material is at the sole discretion of the user.
Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.
Issued in the U.S. by Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com - Franklin Templeton Distributors, Inc. is the principal distributor of Franklin Templeton U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.
You need Adobe Acrobat Reader to view and print PDF documents. Download a free version from Adobe's website.
Franklin Templeton Distributors, Inc.
This website is for US residents.
This website is for US residents.
Copyright © 2021 Franklin Templeton. All Rights Reserved.
There are literature items in your cart. If you sign out, all items will be removed.
Click "Stay Signed In" to continue your session and keep items in your cart.
Otherwise, click Sign out to end your session and empty your cart.
You can compare a maximum of 4 funds.
Money funds and liquidated funds cannot be added to comparison.
Quarterly commentary discussing fund performance. View more details
Client Use: | (FINRA Letter) |
---|---|
Literature Code: | |
Format: | () |
Publication Date: | |
Next Update: |