Given the backdrop of a slowing global economy and shaky investor sentiment tied to trade tensions, Franklin Templeton Multi-Asset Solutions’ Ed Perks and Gene Podkaminer are calling for an active investment approach. In the latest edition of “Allocation Views,” they outline six major themes driving their current views: slower global growth, subdued inflation, monetary policy effectiveness, the importance of nimble management, real assets, and alternative assets that aren’t really alternative enough.

Slower Global Growth A Rising Concern

The global economy continues to show downward momentum. Trade in goods has been the transmission mechanism for declining sentiment; the big question remains whether contagion from manufacturing threatens the more resilient services sector.

Stress in the traded goods sector of the economy has been broader based than just the flows directly impacted by tariffs imposed by the United States, or the retaliatory measures enacted by China. Indeed, threats to expand the theater of this trade dispute continue to pose a direct threat to European automakers. This hit to confidence has already started to impact manufacturing employment, and with factory orders in Germany showing little sign of a rebound, the risks to growth remain skewed to the downside.

However, it is the seeming intractability of the conflict between the United States and China that has become a bigger concern. We view trade disputes as only one symptom of broader tensions between an incumbent global power and its chal­lenger for supremacy.

Taking a broader perspective of the major economies, the United States remains better placed than some in Europe. However, both regions show high levels of employment, and the relative confidence of consumers remains intact. This provides some cause for optimism.

While we continue to see few signs of late-cycle imbalances that typically foretell recession, and the probability of recession remains moderate, the risks are rising. The deeper the trade slowdown and the longer it persists, the harder it is to see the global economy escaping some form of contagion.