Franklin Templeton remains focused on the long-term opportunities emerging from the Trump administration’s ambitious economic agenda, despite near-term headwinds.
These opportunities include initiatives to reduce federal spending, lower the deficit, rebalance global trade, and stimulate growth through tax reform and deregulation, Grant Bowers, portfolio manager, Franklin Equity Group, told a Franklin Templeton webinar in Asia on Wednesday.
Therefore, “we have taken a selective and opportunistic approach by adding to high-quality US growth companies poised to benefit from powerful secular trends such as artificial intelligence, health care innovation, and the resurgence of domestic manufacturing and industrial activity,” he said.
Todd Brighton, portfolio manager at Franklin Income Investors, has a similar approach.
“We have begun to adopt a more offensive stance in our portfolios, capitalising on price attractiveness in fixed income and equities,” he said.
Brighton likes dividend-paying stocks and selective growth-oriented companies through equity-linked notes, which offer “compelling income, market drawdown buffers, and capital appreciation potential”
Among fixed income assets, he favours agency MBS and US treasuries for downside risk management and competitive yields.
“Overall, our strategy is broad diversification from an asset class and sector perspective while seeking to be nimble and opportunistic,” said Brighton.
In Asia, Yi Ping Liao, portfolio manager & senior research analyst, Franklin Templeton Emerging Markets Equity, believes that the escalation of tariffs between US and China are a continuation of a broader decoupling trend that began during Trump’s first term.
“We see the ongoing trade war as a headwind to the Chinese economy and are cautious on broader Chinese equities,” she said.
On the other hand, Liao identifies “high quality bottom-up investment opportunities due to China’s large domestic market, strong investment in human capital, and scope for monetary and fiscal easing”.
In fact, Asian equities in general are appealing because the possible unwinding of US exceptionalism and dollar weakness might lead to a shift in assets from the US to the rest of the world.
“Asian equities look very compelling in this context, as the region continues to be the engine of global growth,” said Liao. “Valuations for Asia ex Japan still look inexpensive compared to the rest of the world.”
Within emerging market Asia, Liao think India is best positioned, “as the economic drag from tariffs is limited given India’s large domestic market, and India may also be well-positioned to negotiate a trade deal for lower tariffs”.
Finally, Carol Lye, portfolio manager & senior research analyst at Brandywine Global, a specialist investment manager at Franklin Templeton, warned that US recession risks are high due to the impact of immigration and tariff policies.
“We anticipate that tariffs on Europe and China will detract 1% to 2% off these countries’ growth, but these will be offset to some extent by fiscal stimulus,” she said.
Growth convergence and fiscal trends between the US and the rest of the world will lead to a re-allocation from US assets and to a weaker US dollar, she added.
Within fixed income, Lye is neutral G10 duration, although she favours UK gilts to Eurozone bonds. Across emerging markets, Brandywine Global sees opportunities in local currency high real yielding bonds such as Mexico, Brazil and South Africa, and in Asia, “Chinese and Korean bonds provide safe haven protection”.
