Staying Nimble Amid an Uncertain Outlook

Bouts of volatility hit markets across the globe in the third quarter of 2019 amid continued uncertainties about global growth and trade. Central banks took notice, with the US Federal Reserve easing interest rates for the first time in more than a decade and the European Central Bank also cutting rates and reintroducing quantitative easing. Against this backdrop, our senior investment leaders discuss why they do not see a recession in the near term, but are taking a cautious and nimble approach.

Below are some highlights of their views. For detailed insight from our investment leaders, visit our Global Investment Outlook page.

Discussion topics within:

  • Recession: Separating Fact from Fears
  • The Consequences of Monetary Policy
  • Geopolitical Risks Take Center Stage
  • Potential Shocks

Global Macro

Michael Hasenstab, Ph.D.
Chief Investment Officer,
Templeton Global Macro

  • If we were to look back 10 years ago, the thought that central banks would be cutting interest rates when wages were going up, when there is record-low unemployment and decent economic growth, would seem pretty unconventional. We just don’t know what some of the results of this policy experiment will be.
  • When an economic downturn does eventually come, our question is, what policy tools are left to restart growth? Governments have already spent money and central banks have already lowered interest rates preemptively to react to a potential shock that hasn’t actually materialized, so policymakers are running out of tools.
  • We need to consider whether exceptionally low interest rates are artificially pushing investors seeking better yields into riskier assets at higher valuations and perhaps less liquidity. I think it’s certainly prudent to be building a more cautious portfolio, because when we look to the horizon, it’s hard to imagine a period of geopolitical stability coming in the near term at least. We think it’s important for investors to be nimble—that means being actively positioned for greater risks ahead.
  • Whether it’s stretched valuations, the lack of policy tools that central banks and ministries of finance have to fight an inevitable downdraft, or less liquidity in markets because people are buying riskier assets, we see these conditions as a mounting pile of dry kindling. We don’t know what the spark will be, but we think it’s time to buy more fire extinguishers.