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Mid-Year Emerging Markets Update: Recovery Phase
As Ive often said, investing in emerging markets requires patience, long-term perspective, and selective stock-picking. I think many investors focus too much on the short-term. As long-term investors, we view short-term bouts of volatility as an opportune time to find potential bargains for our portfolios, and we certainly experienced that in the first half of the year.
Taking a Balanced View of Equities
With the US S&P 500 Index and Dow Jones Industrial Average advancing into record territory this year and some European equity benchmarks likewise nearing new highs, some investors may be wondering whether its still wise to be jumping into the market at this stage. Lisa Myers, executive vice president, Templeton Global Equity Group, thinks that a long-term investment horizon, supported by bottom-up analysis, can reveal hidden value.
Mid-Year Muni Market Update
The municipal bond market faced a rather tough year in 2013, with news of troubles in Detroit, Puerto Rico and elsewhere scaring off some investors. This year hasnt exactly been smooth sailing for the muni market either, but the waters seem a bit calmer and many investors have returned to the sector. Rafael Costas, Co-Director, Municipal Bond Department, Franklin Templeton Fixed Income Group, could be called cautiously optimistic about the muni market. He provides an update on some key market developments, including progress in the aforementioned trouble spots.
Global Economic Perspective: June
With 10-year US Treasury yields dropping below 2.5% at one point during early June in spite of improving forward economic indicators, the US bond market has continued to send out confusing signals, in our view. Purchasing manager indexes have remained well over the 50 mark that separates expansion from contraction for many months, consumer demand has remained relatively buoyant, and nonfarm payrolls show job creation running at over 200,000 per month for 13 of the 21 months to May 2014.
Mexicos Road to Reform
Many investors had high hopes for Mexicos market this year given an improving global economic outlook and a slate of planned domestic reforms, but some of the enthusiasm seems to have faded and economic growth has been subdued there year-to-date. I have faith in Mexicos future, even though there are likely to be a few short-term bumps as Mexicos reform efforts continue to be implementedand some challenged.
On-the-Ground Perspective in Thailand
Thailand has been in the throes of political crisis over the past few months, leading to the imposition of martial law in May after months of protests and threats of violence between two opposing groupsthe anti-government Peoples Democratic Reform Committee (PDRC), known as the yellow shirts, and the pro-government United Front for Democracy against Dictation (UDD), known as the red shirts.
ECB Leaves the Door Open for Further Action
he European Central Bank (ECB) delivered a robust package of monetary policy measures on June 5 and promised more to come if needed to help stave off deflation and support the eurozones fragile economic recovery. Among the moves announced were interest rate cuts, including a negative interest rate on excess deposits that banks hold with the ECB, and new facilities to support bank lending to small businesses. We asked David Zahn, portfolio manager for the Franklin Global Government Bond Fund, for his thoughts on what these latest measures could mean for investors.
ECB Leaves the Door Open for Further Action
The European Central Bank (ECB) delivered a robust package of monetary policy measures on June 5 and promised more to come if needed to help stave off deflation and support the eurozones fragile economic recovery. Among the moves announced were interest rate cuts, including a negative interest rate on excess deposits that banks hold with the ECB, and new facilities to support bank lending to small businesses. We asked David Zahn, portfolio manager for the Franklin Global Government Bond Fund, for his thoughts on what these latest measures could mean for investors.
A Quarter Century of Emerging-Markets Investing
At one time or another, every country could have been classified as emerging. Back in the 1800s, the Western part of the United States was called the new frontier. Investors purchasing farmland there were likely to consider it a highly speculative venture putting stakes in such a rugged and wild place.
Long-Term Opportunity in Tech Sector Volatility
The technology sector seems to have again demonstrated just how frustrating markets can be. An investor favorite last year, the sector has been volatile in the first part of 2014, leading some to believe a tech bubble could be brewingor perhaps a slow leak has already begun. Matthew Moberg, portfolio manager for Franklin DynaTech Fund, says he doesnt pay much attention to semantics or speculation.
Long-Term Opportunity in Tech Sector Volatility
The technology sector seems to have again demonstrated just how frustrating markets can be. An investor favorite last year, the sector has been volatile in the first part of 2014, leading some to believe a tech bubble could be brewingor perhaps a slow leak has already begun. Matthew Moberg, portfolio manager for Franklin DynaTech Fund, says he doesnt pay much attention to semantics or speculation. Hes busy looking for companies that he believes have staying power and growth potential beyond temporary trends. And, he says hes using recent volatility as an opportunity
Thailands Tensions, and Resilience
Thailands imposition of martial law on May 20 came after months of protests and threats of violence between two opposing sidesthe anti-government group called the Peoples Democratic Reform Committee (PDRC), known as the yellow shirts, and the pro-government group called the United Front for Democracy against Dictation (UDD), known as the red shirts. The PDRC demanded for the government to step down to pave the way for an appointed government.
Russian Interests
Tensions between Russia and Ukraine remain high, and have spilled onto the international stage. The Western world seemed to be caught off guard by Russian President Putins reaction to civil unrest in Ukraine, leading to Russias annexation of Crimea and spreading into a broader question of regional sovereignty. The situation remains fluid, so its difficult to predict just exactly how it might play out. But given escalating conflict in Eastern Ukraine, we do not envision an easy or quick end to the conflict.
Pacific Powers: Australia and Japan
Separated by nearly 4,000 miles of sea, the economies of Australia and Japan are often lumped together under the Asia Pacific (APAC) label. Both of these countries can be considered global powers and powerful GDP generators, but their economies, the challenges they face and their responses to those challenges have been very different. Don Huber, vice president, research analyst and portfolio manager, Franklin Equity Group, looks at how these APAC powers are navigating their unique issues and shares his market outlook for each.
College Costs 101: What are 529 Plans?
Tabulating the costs of a college education can be overwhelming for new parents, so overwhelming, in fact, that many choose not to think about it at all, assuming the situation will resolve itself in time. Many parents wind up turning to student loans as the solution to finance a college education, often resulting in a shiny new diploma accompanied by a mountain of debt.
Thoughts on Investing in Convertible Securities
Changes and potential changes in monetary policy across the globe, along with increased volatility in currency and equity markets, have thrown a spotlight on convertible securities, described by some as offering the best of both worlds in terms of stock and bond characteristics. But what are they, how do they work, and how can they play a part in a diversified investment portfolio in todays market? Alan Muschott, portfolio manager for Franklin Convertible Securities Fund, who has been investing in convertible securities for more than a decade, provides his take.
Thoughts on Investing in Convertible Securities
Changes and potential changes in monetary policy across the globe, along with increased volatility in currency and equity markets, have thrown a spotlight on convertible securities, described by some as offering the best of both worlds in terms of stock and bond characteristics. But what are they, how do they work, and how can they play a part in a diversified investment portfolio in todays market? Alan Muschott, portfolio manager for Franklin Convertible Securities Fund, who has been investing in convertible securities for more than a decade, provides his take.
Taking Emotion Out of Taking Risk
The straight ?risk-on/risk-off? play where investors flee assets perceived as risky en masse in times of uncertainty seems to be becoming a bit more nuanced this year. As a bottom-up stockpicker, Peter Langerman, takes the short-term emotional response out of the equation as he looks for opportunities for his portfolios where other investors may have jumped ship. Langerman discusses where he?s finding value today, why he thinks the markets are probably ?right where they should be? and why some investors may need to take a few risks to meet their long-term financial goals.
Indian Investors Express Their Optimism
Some 800 million voters in India are heading to the polls this month in an election process that will take several weeks to complete. India?s stock market has recently reflected the optimism investors feel in India. After a stretch of policy logjams and years of unmet potential in India, we?re also optimistic.
A Creative Approach to Revitalize South Korea?s Economy
South Korea has been an exciting country to follow since Templeton started investing in emerging markets in 1987. The country represents one of the great success stories of the modern age, rising from extreme poverty at the end of the Korean War to become an affluent, democratic and highly technologically advanced country. However, we believe recent years have seen signs that the methods and structures that gave rise to the years of dramatic economic progress have started to lose their effectiveness.
Hasenstab: Separating the Wheat from the Chaff
Fixed income investors have dealt with a number of headwinds in early 2014, including unrest in Eastern Europe, the prospect of rising interest rates in the United States and fears about slowing growth in China. Michael Hasenstab, executive vice president and CIO, Global Bonds, Franklin Templeton Fixed Income Group, has been on a global tour to assess conditions in select countries first-hand, looking beyond what the media headlines portray.
The Economic Cost of Brazil?s Spending Spree
Brazil has been on a spending spree during the past few years, which, unfortunately, has failed to generate meaningful growth and has led to negative economic consequences. In addition to the lavish spending in preparation for the FIFA World Cup? this summer and the Olympic Games in 2016, Brazil?s national oil company has been spending billions of dollars on expensive offshore oil exploration, production and energy development.
Hasenstab in Ukraine, on Ukraine
Ukraine is a country both rich with potential and strategically well positioned. While recent events have been very difficult for many, the people of Ukraine have shown their strength. It?s also been heartening to see the proactive support from the international community. Michael Hasenstab, chief investment officer, Global Bonds, Franklin Templeton Fixed Income Group, shares his view on the long-term potential of this unique country after a recent visit to Kiev.
Examining Companies Through the Lens of ESG
No matter where we invest, there?s always some sort of risk. This includes not only geopolitical or macroeconomic factors in a given country, but also issues that are unique to a specific sector or individual security. As bottom-up stock pickers, my team and I must assess the potential risks and returns related to each and every company we invest in. One area that warrants closer examination is environmental, social, and governance (ESG) risks and opportunities, which can play a big role in our stock selection and valuation process.
Labor Market Clues for Bond Investors
When the US Federal Reserve (Fed) began tapering early this year, the general assumption was that investors would flee en masse from fixed income investments. Certainly, there has been some volatility in Treasury yields, most recently after Fed Chair Janet Yellen suggested interest rates could start to rise around six months after tapering ends ? which would be somewhat sooner than many were expecting.
Unleashing Africa?s Potential
Many investors who have never traveled in Africa probably have preconceived ideas about it, perhaps as a land of safaris and political strife, rich in coveted natural resources that have failed to bring widespread wealth and development to the continent. Many also might not realize how diverse the landscape, the economies and the people are on the continent, which boasts more than 1,000 languages spoken in more than 50 countries and climates ranging from hot deserts and tropical rainforests to frozen glaciers.
Climbing a Wall of Worry?
One of the main questions our clients have been asking us lately revolves around worries of how strong equity markets have been over the last five years. During that period, we?ve seen markets bottoming out in February ? March 2009 and basically recovering since then.2 Given the performance of the market since the trough, it?s not surprising that people are a bit concerned right now, and the market has been quite volatile in early 2014.
Pockets of Opportunity in Europe, Emerging Markets
Maintaining the right mix or balance of assets in a portfolio to achieve a desired goal can be a challenge, particularly when the markets are constantly shifting. As portfolio manager for Templeton Global Balanced Fund, Lisa Myers, executive vice president, Templeton Global Equity Group, regularly faces that task.
Ukraine at Crossroads
In February, the winter Olympic Games brought athletes from around the world together in Russia, but in Ukraine, Russia's neighbor to the southwest, the story has been one of division. Violent clashes between pro-EU (European Union) protesters and government forces in the past few months have focused the eyes of the world on the former-Soviet state after (now former) President Yanukovych had refused to sign an Association Pact forging closer ties to the EU and decided instead to accept funding from Russia.
Casting a Wide Asset Net in a Volatile Sea
It?s fair to say that investors will likely never be fully comfortable with market volatility. But actively managing the inevitable bumps that accompany equity investments, even in bull markets, can help make the ride a little less harrowing, according to Ed Perks, executive vice president and director of Portfolio Management, Franklin Equity Group. He explains how understanding the fundamental dynamics behind market selloffs is key to uncovering potential opportunities in the face of a rough market ride.
Corporate Credit Charting its Own Course
At the start of the year, equity investors were fretting about possible emerging-market contagion, while bond investors were fretting about fallout from US Federal Reserve tapering. Meanwhile, the corporate credit market seemed to be charting its own course. Eric Takaha, director of the Corporate & High Yield Group and senior vice president, Franklin Templeton Fixed Income Group, takes a look at the corporate credit/high-yield market and explains why he currently sees supportive fundamentals.
Corporate Credit Charting its Own Course
At the start of the year, equity investors were fretting about possible emerging-market contagion, while bond investors were fretting about fallout from US Federal Reserve tapering. Meanwhile, the corporate credit market seemed to be charting its own course. Eric Takaha, director of the Corporate & High Yield Group and senior vice president, Franklin Templeton Fixed Income Group, takes a look at the corporate credit/high-yield market and explains why he currently sees supportive fundamentals.
A Time for Optimism in Europe?
Volatile markets and an uneven recovery may appear to justify a cautious outlook for investing in Europe right now, while in the US the specter of higher interest rates might also be signaling a challenging market environment ahead. Philippe Brugere-Trelat believes the investment case for European equities favors a more optimistic outlook and despite a bumpy start to the year for equities globally, he still sees the market as rife with potential opportunities for selective investors, particularly undervalued segments of the market. One place where he thinks caution is likely warranted? Japan.
A Time for Optimism in Europe?
Volatile markets and an uneven recovery may appear to justify a cautious outlook for investing in Europe right now, while in the US the specter of higher interest rates might also be signaling a challenging market environment ahead. The investment case for European equities favors a more optimistic outlook and despite a bumpy start to the year for equities globally, he still sees the market as rife with potential opportunities for selective investors, particularly undervalued segments of the market. One place where caution is likely warranted? Japan.
Value-Hunting in the US
With key stock indices in the US closing the year near historical highs and many pundits predicting stronger growth rates both in the US and globally going into 2014, one would think bargains would be hard to find this year. Januarys volatility, however, proved just how unpredictable markets can be. The recent market gyrations may be somewhat painful for many investors in the short-term, but the silver lining is that corrections can serve up buying opportunities, particularly for long-term, value-oriented investors.
Getting Comfortable With Volatility
Over the past few weeks, weve seen significant volatility in the markets, which has spooked some investors, but is also something we have become accustomed to. Markets generally (not only emerging markets) have become much more volatile during the last 20 years as a result of massive flows of money from not only institutional investors and long-only mutual funds but also hedge funds and high-frequency trading. We see such selloffs as potential opportunities to pick up bargains in select stocks if, in fact, the prices move low enough to draw our interest.
Hasenstab: Standing One's Ground
When the masses are against you, its hard to stand your ground. Going against the crowd is familiar turf for Michael Hasenstab, who manages Templeton Global Bond Fund and co-manages Templeton Global Balanced Fund, and certainly knows the virtue of patience. He has staunchly defended his investment theses over the years, tuning out the naysayers and market noise time and again.
United Arab Emirates: An Emerging Market Melting Pot
The investable Middle East/North Africa region known as "MENA" encompasses 11 diverse countries, extending from Oman to Morocco, and also includes Bahrain, Egypt, Jordan, Kuwait, Lebanon, Qatar, Saudi Arabia, Tunisia and the United Arab Emirates (UAE). I recently had the pleasure of returning to Dubai, the largest city in the UAE, a truly striking and cosmopolitan city with a diverse population from around the world.
Digging for Natural Resource Opportunities in 2014
The natural resources sector has been through a period of transition in the past year, one which has pushed many companies toward cost reduction and greater capital discipline amid an environment of rather sluggish global economic growth. Franklin Equity Group Analysts Fred Fromm, Stephen Land and Matthew Adams think an improving economic outlook could set the stage for potentially stronger commodity demand going forward, and see healthy potential demand growth for energy in particular. They share their outlook for the natural resources sector in 2014, and where they are finding opportunities.
Emerging Markets 2014 Outlook: Shaping the Next Decade
As we embark upon a new year, the Templeton Emerging Markets Group believes 2014 could be an important year for many emerging markets, possibly establishing trends that could play out through much of the remainder of the decade. In particular, Chinese government reform initiatives announced in late 2013 could have far-reaching significance. And, major elections in a number of countries in 2014 could bring dramatic (or not-so-dramatic) changes. Here are a few themes and countries weve got our eye on in the new year.
Digging for Natural Resource Opportunities in 2014
The natural resources sector has been through a period of transition in the past year, one which has pushed many companies toward cost reduction and greater capital discipline amid an environment of rather sluggish global economic growth. Franklin Equity Group Analysts Fred Fromm, Stephen Land and Matthew Adams think an improving economic outlook could set the stage for potentially stronger commodity demand going forward, and see healthy potential demand growth for energy in particular. They share their outlook for the natural resources sector in 2014, and where they are finding opportunities.
Hasenstab: Fed Tapering Was Inevitable
The US Federal Reserve (Fed) announced its decision to reduce its $85 billion monthly asset purchase program by $10 billion starting in January 2014. What might the eventual end of the Feds policy of aggressive money printing mean for fixed-income investors? Michael Hasenstab, Ph.D, executive vice president, chief investment officer, Global Bonds, Franklin Templeton Fixed Income Group, believes theres no reason for investors to panic. He outlines why he thinks thats the case, and where on the map hes spotting fixed income opportunities.
Emerging Markets 2014 Outlook: Shaping the Next Decade
As we embark upon a new year, the Templeton Emerging Markets Group believes 2014 could be an important year for many emerging markets, possibly establishing trends that could play out through much of the remainder of the decade. In particular, Chinese government reform initiatives announced in late 2013 could have far-reaching significance. And, major elections in a number of countries in 2014 could bring dramatic (or not-so-dramatic) changes. Here are a few themes and countries weve got our eye on in the new year.
Municipal Bonds: Back to Basics in 2014
Municipal bonds faced some ups and downs in 2013, falling victim to Fed taper speculation and negative press that dogged Detroit and Puerto Rico and understandably scared off some investors. Sheila Amoroso and Rafael Costas, co-directors of our Municipal Bond Department, note that while there are still some issues to work through and even despite the sometimes-shocking headlines, not all news in the world of munis is bad news. They say investors need to get back to the basics and re-examine the reasons for investing in municipal bonds.
Tech Bubble Circa 1999, or Something Different?
Technology sector stocks have been investor favorites in 2013, pushing the tech-heavy Nasdaq Composite Index to its highest level since 1999 and drawing comparisons to the "dot com" bubble which burst soon thereafter. Will we see a redux of the tech bust in 2014? John P. Scandalios doesnt think so. Investor fever for anything "dot com" in the late 1990s was built more on promise than actual results.
Global Equity Outlook: Clouded by Uncertainty
Global equity investors generally had reason to cheer in 2013, and seemed more willing to embrace risk as the year progressed. Will the bullish mood persist in 2014? Norm Boersma, Chief Investment Officer, Templeton Global Equity Group, says that while its clear global investors have been allocating more dollars toward equities in recent days (particularly US equities), there are still a number of unknowns that make it hard to be overly exuberant.
Risk Assets Take Fed Taper Announcement in Stride
The US Federal Reserve (Fed) delivered an early holiday surprise to some market participants, announcing at its December 18 policy meeting it would start slowing its asset purchase program known as quantitative easing in January. For some thoughts on what this may mean for the markets in the new year, we turned just after the announcement to Roger Bayston. He believes the markets should be able to take the Feds tapering in 2014 in stride, although investors should prepare for the proposition of higher Treasury yields.
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