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In focus: Navigating the post-“Liberation Day” uncertainties
Amid persistent US tariff uncertainty and potential earnings growth slowdown, Templeton Global Equity Group (TGEG) aims to stay selectively invested with a prudent approach that focuses on geographical diversification and sectors less vulnerable to tariffs.
Harnessing the opportunities in the European and Japanese markets is part of our priority in the current climate. In stock selection terms, we prefer companies with stronger domestic revenue exposure and lower vulnerability to cross-border supply chain disruptions, among other ideas. As always, valuation discipline and bottom-up fundamental research will continue to anchor our decision-making process.
Investment outlook
Investor sentiment toward the Trump presidency has turned increasingly skeptical due to its unpredictable nature, a trend that is likely to continue weighing on US equities in the coming quarters. While the US market may still perform well, its major outperformance over the rest of the world could be over. We see mispricing opportunities to revisit some technology stocks following corrections but remain cautious on US businesses reliant on cross-border trade and complex global supply chains. In Asia, various forecasters anticipate economic and earnings growth to slow, but our bottom-up approach should help us identify resilient companies for portfolio enhancement. That entails maintaining our “Domestic China–Global China” positioning in markets in mainland China and Hong Kong, given the tariff overhang. We are more optimistic about Europe’s economic outlook and growth drivers. Sectors such as industrials and materials may benefit from the potential cyclical recovery. Small and mid-cap companies continue to look attractive against this backdrop.
In North America, the investment environment has changed dramatically over the past few months. Developments since the start of the year lead us to believe that it is reasonably likely that the extraordinary outperformance of US stocks versus the rest of the world since the global financial crisis could be over. This does not mean US stocks won’t perform well going forward, but it suggests that other regions’ equity markets may begin to match or even exceed US stock returns.
In Asia, equities saw some recovery in the second half of April, indicating market hopes around potential softening of Trump’s tariff threats and US-China trade tensions. Amid the ebb and flow of market narratives and sentiment, we maintain our view that the policy and economic outlook remains highly unpredictable. An economic slowdown is still widely expected, with the International Monetary Fund projecting growth in emerging and developing Asia to moderate to 4.5% in 2025 from 5.3% in 2024; China’s 2025 growth may also weaken to 4%, down from 5% in 2024.1 In tandem, consensus earnings forecasts are being downgraded. The MSCI AC Asia Pacific ex-Japan Index may see earnings growth of 10% in 2025, versus 21% in 2024, while earnings growth in Japan may slow from 4% to 2%.2
In Europe, ongoing volatility is keeping investors focused on short-term challenges and US policy implications. Meanwhile, stubbornly high interest rates and falling energy prices remained significant in recent months. Most notably, the US presidential election has reversed policy tailwinds as the US administration has taken an aggressive approach to international trade, having knock-on effects worldwide.
Market review: April 2025
Global financial markets gained but experienced significant volatility in April. As measured by MSCI indexes in US-dollar terms, developed market equities underperformed emerging market equities. In terms of investment style, global growth stocks substantially outperformed global value stocks.
Investor anxiety about the impact of US trade policy weighed on stocks, bonds and currencies. The month started with US President Donald Trump’s announcement of “reciprocal” tariffs that were more sweeping and severe than many had expected, driving stocks substantially lower. However, stocks recouped most of their losses after Trump announced a 90-day pause on the implementation of such tariffs on imported goods from most countries and removed tariffs on certain electronic products. US-China trade tensions eased somewhat after the US administration adopted a softer tone, further supporting stocks. On the economic front, early reports for April indicated that tariff concerns weighed on manufacturing activity across many regions, while services activity continued to grow in several regions.
EndNotes
- Source: “World Economic Outlook”, IMF. As of April 2025. There is no assurance that any estimate, forecast or projection will be realized.
- Source: FactSet, IBES, Goldman Sachs Global Investment Research. As of May 3, 2025. The MSCI AC Asia Pacific ex Japan Index captures large and mid-cap representation across 4 of 5 developed markets countries (excluding Japan) and 9 emerging markets countries in the Asia Pacific region. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator of future results.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks. There can be no assurance that multi-factor stock selection process will enhance performance. Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods.
Active management does not ensure gains or protect against market declines.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically. The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.
Investments in fast-growing industries like the technology sector (which historically has been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments.
Diversification does not guarantee a profit or protect against a loss.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.
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