Many investors have an innate “home country” bias, giving them blinders when it comes to opportunities beyond their own nation’s borders. But the economic outlook for your home country might be quite different from one halfway across the globe—or even right next door. Emerging markets may be viewed as a world away to investors in developed markets, but they can make a potentially compelling investment story for those seeking diversification. William Ledward, Senior Vice President and Portfolio Manager for Franklin Templeton Fixed Income Group based in London, makes the case as he sees it for emerging market debt.
Ledward’s key points:
• Emerging markets have become a greater part of both the global economy and capital markets in the last decade, a trend that he believes is likely to continue.
• Economic fundamentals in many emerging markets appear healthier in his view today than in many developed countries, even though yields on many emerging market debt issues are generally higher.
• Credit quality, liquidity and governance in emerging market debt have generally improved over the last 10 years. Read more…
In a time of severe stress and crisis, it’s easy to come to the conclusion that Armageddon is upon us. Those who believe the European Union is going to split up and China’s growth will come to a screeching halt are probably building bunkers and sharpening their survival skills right about now. Dr. Michael Hasenstab, Senior VP and co-director of Franklin Templeton Fixed Income Group’s® International Bond Department, isn’t in panic mode. In fact, he’s optimistic the eurozone will survive, and that no, China won’t move back into the feudal age. However, he does believe there are some game-changing events taking place in the financial markets and in China today that will have future consequences for investors—some potentially good, but others maybe not so much. As a long-term investor, he’s planning ahead for these potential future consequences, and is seeking out the high ground.
Hasenstab’s assessment of current events, in his words:
Dr. Michael Hasenstab
- “Things are difficult, but I don’t think we need to believe the Armageddon scenario. Greece appears financially terminal, but in my view, Italy and Spain by no means have to be financially terminal.”
- “A country may print its way out of a liquidity crisis, but it can’t print its way out of a solvency crisis or print its way to lower unemployment rates.”
- “I think there is no question China is in a mini cyclical slowdown, but nowhere near a precipitous drop.”
- “Wage pressures in China have important global implications. Today, I believe China is on the cusp of exporting inflation, a completely different dynamic.”
- “I don’t believe there’s a risk-free asset anymore. The question is whether you are getting rewarded for the risk you are taking. There are always opportunities, and I think if you have a long-term perspective, you can be rewarded.” Read more…
Six months into 2012, investors whose New Year’s resolutions included a vow to hold strong through market dismay may be finding that the eurozone crisis and slowing global growth are testing their resolve. As we move into the second half of the year, sluggish growth and continued market uncertainty seem likely to be ongoing scenarios for the U.S., as the nation faces a fall presidential election and teeters on the edge of a precarious-sounding “fiscal cliff.” In this sobering Beyond Bulls & Bears post, Chris Molumphy, Executive Vice President and CIO of the Franklin Templeton Fixed-Income Group®, offers some cautiously optimistic mid-year perspective on the U.S. economy.
Molumphy’s thoughts, in brief:
- “While there are certainly headwinds (in the U.S. economy), we feel that there is a reasonably solid base, and not a backdrop that appears likely to lead to a double-dip recession.”
- “Although employment growth has stalled out a bit over the past several months, our view is that we would expect a gradual—and an emphasis on gradual—improvement over the coming months and quarters.”
- “We don’t envision significant upside in the coming months and quarters in housing, but we think we finally may be seeing some stability in the overall market.”
- “This could be the fourth year in a row for the U.S. to run a deficit in excess of $1 trillion, and as the total debt climbs, the U.S. could be in danger of further ratings downgrades come first quarter of next year without a realistic debt reduction plan in place.” Read more…