Our Franklin Templeton Investment Solutions suggests the outlook for global economic activity remains constructive and should support moderate return prospects for riskier assets in the medium term.
Preview
When we review economic developments and try to relate them to markets, we always come back to the same questions. Is it in the price? And the similarly ubiquitous, “is it the level or the rate of change that matters?”
In this month’s Allocation Views, we will revisit both questions as we decide to “step to the sidelines” after a number of months where the narrative was staying the course.
Despite a constructive growth outlook, we believe global equity markets have moved to extended valuations. This reflects a sharp rebound in which investor optimism, built on improving fundamentals, may have been fully reflected in market sentiment. Although we believe global stocks still have greater performance potential than global bonds, we have stepped to the sidelines after a period where our view was best described as staying the course.
We see greater divergences in monetary policy and reflect this in our preferences between high-quality fixed income assets. European government bonds remain more attractive to us, and likely benefit from the commencement of easing cycles.
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