The prospect of a second Trump presidency raising tariffs across the board was met with sanguinity at Franklin Templeton’s recent 2025 investment outlook, although speakers there warned of heightened volatility.
Yi Ping Liao, assistant portfolio manager and senior research analyst at Franklin Templeton Emerging Markets Equity, noted that the incoming Trump administration had conflicting objectives.
On the one hand, it wanted to encourage reshoring, although at the same time it sought to tame inflation, which meant that the outcome in terms of tariffs might be less stark than Trump’s rhetoric would suggest.
“He has many goals in mind and some of them may conflict with each other so he may have to dial back some of these things. Secondly, the US government and US political system does have a lot of guardrails to prevent significant policy deviation. I think if we look through the noise, there may be a not worst-case scenario being implemented,” she said.
Stephen Tong, senior client portfolio manager at Franklin Income Investors, said that investors should brace themselves for more volatility, citing the impact of tariffs on the automotive industry, although he noted that this presented opportunities for bottom-up investors.
“To us as an active manager, there is a lot of opportunity. For example, you see the car industry has been negatively affected because of what Trump has said. That could mean better entry points. That means as he keeps on talking about new policy ideas, there will be more market volatility and that dynamic will benefit an active manager like us,” he said.
Tong also touched upon a much-touted theme: the extent to which the outperformance of the Magnificent Seven had run its course since the summer, which he said presented opportunities for active management.
“Up until June, what we observed is a market which was very one-sided. 18 months before June, it was all about the Magnificent Seven. They contributed over half of the upside of the S&P 500. We uncover more and more opportunities now beyond the Magnificent Seven and are looking at opportunities globally,” he said.
India remains popular
In terms of markets, India was a popular pick with Carol Lye, portfolio manager and senior research analyst for Brandywine Global, noting that it was a potential winner in any trade war.
“I think India is in a sense more insulated from Trump’s tariffs and policies. They may even likely benefit from the reallocation of supply chains. Some of the policies that India may actually come up will be to open the markets a bit, which actually is helpful for them as well. Obviously, Trump may try to push them in that direction. Overall, that’s good for India,” she said.
These views were echoed by Liao.
“It’s important to note that India is still a very domestically driven economy so more insulated. But let’s just talk trade. Let’s say that there’s a 60% tariff on China and a 10% to 20% global tariff on India. Just because of the relative difference in tariffs, we can probably see an acceleration in terms of the supply chain diversification that we’ve already been seeing,” she said.
In terms of China, Liao was “cautiously” optimistic about the opportunities there, noting that the stimulus measures announced since the end of September had effectively put a floor on financial markets.
“I think the government is essentially trying to bolster confidence in the financial markets. You saw prior to the announcement that the CSI 300 was hitting below the 3000 level. Post, it went up to over 4000,” she said.
“We don’t expect it to test those pre-announcement lows given this support. We remain cautiously optimistic for a cyclical market rebound in the Chinese market to continue and I guess within that context as a bottom-up stock picker, we continue to find opportunities there.”
In terms of other markets, Liao noted that Vietnam was a tricky one given that it has the fourth largest current account surplus with the US after the EU, Mexico and China and was therefore less likely to benefit from supply chain diversification the way it had during the first Trump presidency.
Credit rather than duration
In terms of fixed income, Tong noted that spread tightening remained an issue, although he noted that this was offset in part by high absolute yields.
“I talk about the spread tightening to a historical level and the Treasury yield moving very quickly, the good news is the absolute yield remains attractive compared to the historical level. The historical 10-year Treasury is somewhere around 2.5% and now we’re still 4% plus,” he said.
In terms of duration, Tong was largely agnostic, noting that it was better to search out yield through bottom-up security selection rather than taking a particular stance on it.
Lye also expressed the view that she found few opportunities within Asia credit because of the high real yields overall.
