Coping With a Changing Market Landscape

Franklin Templeton's CIOs' Global Investment Outlook stresses it's important to be selective and not too complacent in 2020.

Many investors anticipated a volatile year in 2019. As the year unfolded, recessionary fears continued to bubble up amid continued Brexit delays, an unresolved US-China trade war and numerous other tensions around the world. Yet, economic data remained generally sound and global stock markets powered ahead, with US equities reaching new all-time highs by year-end.

Although uncertainties remain, our senior investment leaders have a cautiously optimistic outlook for 2020. They still do not see a global recession looming and believe there are plenty of reasons to remain invested. However, they also stress it’s important to be selective—and not too complacent—amid a changing market landscape.

Key viewpoints

• We think it’s important to focus on hard data, and not just headlines. We see few signs the global economy is headed toward recession. Despite persistent trade uncertainty and a contentious political environment, the world’s largest economy, the United States, remains on a steady footing. Trade tensions, weaker manufacturing activity, declining business sentiment, and rising political tensions and polarization are all risk factors we see carrying into 2020.

• While we see the upcoming year as a period of potential uncertainty, we also see significant opportunities. We think investors need to prepare for the challenges ahead in 2020 by focusing on allocations that can provide true diversification against highly correlated risks across the asset classes.

• Although many investors remain anxious, we see ample reason to remain invested in global equities in 2020. For our portfolios, we are looking for companies that are innovating within their respective industries and also are seeking opportunities in out-of-favor value stocks.

• While we are cautious on the broad outlook for emerging markets as a whole, we remain optimistic, and continue to see opportunities in specific countries and in certain alpha sources. We think selective positioning is important as investors continue to worry about protectionism and deterioration in geopolitics.