Global Investment Outlook: How Much Further Can Global Growth Fly?

A number of market headwinds—including trade tensions, rising interest rates and a general fear the long-running US economic expansion may be facing fatigue—have cast a shadow over the markets in the first half of the year. Nonetheless, US economic growth managed to hit a four-year high in the second quarter, and the US equity market marched along to what many regard as its longest bull run in post-WWII history.

Templeton Global Macro CIO Michael Hasenstab, Franklin Templeton Fixed Income Group CIO Chris Molumphy and Franklin Templeton’s Head of Equities Stephen Dover weigh in on whether synchronized global growth can continue, why worries about trade wars may be overblown and why opportunities for investors may be more idiosyncratic or divergent moving forward.

Key Takeaways:

  • Generally, we expect positive global economic growth to continue for the near term, led by the United States and supported by continued profit and earnings growth.
  • We believe growth has peaked in Europe and is decelerating, while economic data in Japan continues to look soft. The US economy is benefiting from stimulus measures, including a reduction in regulations as well as tax cuts.
  • The case can be made for continued strength in emerging markets, on the heels of favorable demographics and technological advancements. While some emerging markets have been experiencing significant challenges, broadly we think many emerging markets should be fundamentally stable and offer opportunity for selective investors.
  • China continues to de-leverage the shadow banking sector, which we believe has positive long-term implications. We will probably see more of a US and China tit-for-tat trade dispute, as opposed to a full-out trade war. Our baseline is it probably increases volatility but doesn’t impact fundamentals much.
  • We think market skepticism is healthy, as it balances out overexuberance in the market. And what worked in the last decade probably is not necessarily going to work going forward. We think it’s about applying research to find opportunities best suited for growth in the current market conditions.