Franklin Templeton CIO’s ‘Global Investment Outlook’ expands on navigating periods of uncertainty and volatility
30 April 2020 - 11:34
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Looking at the economic and market outlook for 2020 just a few months ago, there’s no doubt times have changed. The spread of the coronavirus dealt a severe, unexpected shock that affected people and markets around the globe. Many investors are wondering how to navigate the supply and demand shocks, and questioning, where do we go from here?
While clearly the scope and reach of the coronavirus crisis is unprecedented, Franklin Templeton's senior investment leaders have plenty of experience navigating periods of uncertainty and volatility. They outline how they see a recovery taking shape once the crisis passes and offer some investment insights.
The base-case scenario used was disaggregated into two components. The first is the coronavirus and its immediate fallout and the second, the underlying fundamentals that underpin the economy. The base-case has now moved to recession, based on readings of fundamental impacts, market reactions and the significant drag on economic activity globally.
Medium-to-long-term outlook more positive
Diversification is really important in this uncertain environment, and senior investment leaders are slowly starting to reposition their portfolios to take advantage of this extreme dislocation, because the medium- and longer-term outlook looks more positive.
Economic activity resuming in China
China appears to have been successful in containing the coronavirus domestically. Overall, cases have declined considerably, and economic activity is resuming. The government’s focus has now shifted away from containment towards economic normalisation, with restrictions gradually being relaxed to improve the ease of doing business, though changed behaviours across the country are myriad and far-reaching.
Magnitude of demand shock underappreciated
The full magnitude of the aggregate demand shock from the coronavirus may still be underappreciated by markets. Countries, regions and continents have come to an economic standstill.
Likely to reverberate for quarters
Even the most sophisticated economic models are not fully equipped to calculate what it means when people across the world cannot leave their homes; cannot go to work; and cannot go to stores, restaurants, movies, sporting events, vacations or just about anything for months on end. These are unprecedented huge shocks to the global economy that are likely to reverberate for several quarters.
No doubt a severe contraction
The big question on everybody’s mind right now is how bad the economic downturn will be, and what kind of recovery lies ahead. There’s no doubt that activity will suffer a very severe contraction in March and April.
Monetary and fiscal policy providing a bridge
The good news, however, is that the monetary and fiscal policy response appears prompt, decisive and well designed. A co-ordinated combination of fiscal and monetary support can act as a bridge to help individuals and businesses weather the downturn and can set the stage for a robust rebound.
Sources: World Health Organization, Bloomberg, Franklin Templeton Capital Market Insights Group, MSCI, Macrobond. Indexes are unmanaged, and one cannot invest directly in an index. Past performance is not an indicator or guarantee of future performance. Important data provider notices and terms available at www.franklintempletondatasources.com.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
The path to economic recovery: what's next?
Franklin Templeton CIO’s ‘Global Investment Outlook’ expands on navigating periods of uncertainty and volatility
Looking at the economic and market outlook for 2020 just a few months ago, there’s no doubt times have changed. The spread of the coronavirus dealt a severe, unexpected shock that affected people and markets around the globe. Many investors are wondering how to navigate the supply and demand shocks, and questioning, where do we go from here?
While clearly the scope and reach of the coronavirus crisis is unprecedented, Franklin Templeton's senior investment leaders have plenty of experience navigating periods of uncertainty and volatility. They outline how they see a recovery taking shape once the crisis passes and offer some investment insights.
Read: Franklin Templeton's 2020 Global Investment Outlook
Base-case moves to recession
The base-case scenario used was disaggregated into two components. The first is the coronavirus and its immediate fallout and the second, the underlying fundamentals that underpin the economy. The base-case has now moved to recession, based on readings of fundamental impacts, market reactions and the significant drag on economic activity globally.
Medium-to-long-term outlook more positive
Diversification is really important in this uncertain environment, and senior investment leaders are slowly starting to reposition their portfolios to take advantage of this extreme dislocation, because the medium- and longer-term outlook looks more positive.
Economic activity resuming in China
China appears to have been successful in containing the coronavirus domestically. Overall, cases have declined considerably, and economic activity is resuming. The government’s focus has now shifted away from containment towards economic normalisation, with restrictions gradually being relaxed to improve the ease of doing business, though changed behaviours across the country are myriad and far-reaching.
Magnitude of demand shock underappreciated
The full magnitude of the aggregate demand shock from the coronavirus may still be underappreciated by markets. Countries, regions and continents have come to an economic standstill.
Likely to reverberate for quarters
Even the most sophisticated economic models are not fully equipped to calculate what it means when people across the world cannot leave their homes; cannot go to work; and cannot go to stores, restaurants, movies, sporting events, vacations or just about anything for months on end. These are unprecedented huge shocks to the global economy that are likely to reverberate for several quarters.
No doubt a severe contraction
The big question on everybody’s mind right now is how bad the economic downturn will be, and what kind of recovery lies ahead. There’s no doubt that activity will suffer a very severe contraction in March and April.
Monetary and fiscal policy providing a bridge
The good news, however, is that the monetary and fiscal policy response appears prompt, decisive and well designed. A co-ordinated combination of fiscal and monetary support can act as a bridge to help individuals and businesses weather the downturn and can set the stage for a robust rebound.
Sources: World Health Organization, Bloomberg, Franklin Templeton Capital Market Insights Group, MSCI, Macrobond. Indexes are unmanaged, and one cannot invest directly in an index. Past performance is not an indicator or guarantee of future performance. Important data provider notices and terms available at www.franklintempletondatasources.com.
This article was paid for by Franklin Templeton.
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