FRANKLIN TEMPLETON MULTI-ASSET SOLUTIONS
This investment team update describes the views of Franklin Templeton Multi-Asset Solutions (FTMAS). It reflects the key investment themes that underlie a range of portfolios that FTMAS offers to clients globally.
Major Themes That Frame Our Tactical Asset Allocation
- Market Volatility Returns
- Global Growth Divergence
- Modest Inflation Pressures
Business Cycle Persists Despite Global Growth Divergence
Over recent months, we have observed a growing market concern about the desynchronization of global growth, which was reflected in a widening relative performance dispersion between markets. Fears of continued trade conflict, and risks of contagion between emerging markets that have thus far exhibited largely idiosyncratic behavior, have seen the United States behave as an oasis of relative calm and increasingly elusive economic growth. This underlying story had not been changed much by more recent market moves or by softening growth momentum in many economies.
During October, China took proactive steps to support its economy, lowering bank reserve ratios and promising tax cuts. This action could be viewed as affirming the growth divergence as real and worthy of attention. But if the divergence is no longer in question, focus should turn to “how does it narrow?” Do we expect growth in the United States to fade, or the rest of the world to revive?
Looking at our score card of global growth indicators, we see a less positive outlook than was the case in 2017 or the early part of 2018. Global trade is slowing. However, our key measures of the health of the US business cycle remain supportive of a continued period of sustained growth. Profitability may be close to a peak, but we view capital expenditure as likely to support productivity and sustain growth in earnings. This would have beneficial impacts globally, not just in the United States. In that case, at some point, we believe the markets that have fared worst would have a strong likelihood of catching up.
The increased market volatility of the last few weeks makes us cautious about increasing risk exposure more broadly until we see a stabilization in some of the growth momentum indicators that we follow. These indicators are clouding the picture for now. We maintain a modestly lower conviction in emerging-market stocks and a neutral view of equities and toward growth assets more generally, for now.