Rediscover. Opportunities

Transcription

1 Rediscover GL BAL Opportunities

2 If you search worldwide, you will find more and better bargains than by studying only one nation. Sir John Templeton Templeton funds founder and former chairman iv Rediscover Global Opportunities

3 Rediscover Global Opportunities After two years of decline in growth, the world is slated to bounce back in Although investors are now more ready to re-enter equity markets, continued economic uncertainty often paralyses them from taking the next step. At Franklin Templeton, we see uncertainty as opportunities. We believe that The Great Rotation from bonds into equities has just started. We assess the economic landscape in 2014 and take a look at the global trends that could propel economic growth for the future. Learn more about: 1] 2] 3] The Great Rotation Despite a strong equity rally in 2013, the return to equities has been slow. Understand why investors are playing it safe when it comes to investing in equities. Understanding Equity Markets Ongoing market volatility presents mixed signals for investors. However, markets don t behave any differently today than they did in the past. We study equity markets as far back as 1928 to help you make sense of market volatility. Rediscover Global Opportunities The next 5 years could be unlike the past 5 years. Economic growth is expected to improve in 2014 and beyond. Markets around the globe may gain momentum. Find out what the key drivers of global growth are. 1. Source: IMF World Economic Outlook Database, October Copyright By International Monetary Fund. All rights reserved. Rediscover Global Opportunities 1

4 1] The Great Rotation EQUITIES RALLIED IN 2013 Investors who went against the grain did well in 2013, as equity markets generally posted strong returns in U.S. equities led by 32%, followed by global equities with 27%, European equities with 25%, and Asian equities with 14%, as of December YTD Returns for S&P 500 3, MSCI World, MSCI Europe and MSCI AC Asia S&P 500 MSCI World MSCI Europe MSCI AC Asia /12 2/13 4/13 6/13 8/13 10/13 12/13 Since the global financial crisis, the market has been selling equities and avidly buying fixed income in the past few years. We finally see the turning point in 2013, where equity inflows outpaced bond inflows, the first time since Morningstar 5 Direct Equity and Bond Flows as of Sep 2013 Fixed Income Equity BUT THE RETURN TO EQUITIES HAS BEEN SLOW 6 Why the aversion to investing in equities? Many investors agree that market events have caused them to be more conservative towards future investments, and current market volatility is stopping them from investing in equities. In fact, obstacles commonly held by investors towards investing in equities are: 1. the state of the U.S. economy, 2. the state of the global economy, and 3. slow and uncertain economic outlook for Eurozone. 2. U.S., Global, European and Asian equities represented by S&P 500, MSCI World, MSCI Europe and MSCI AC Asia respectively. 3. Sources: Morningstar Direct, S&P 500 Index Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Copyright 2013, S&P Dow Jones Indices LLC. All rights reserved. Reproduction of the S&P US index data in any form is prohibited except with the prior written permission of S&P. S&P does not guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions, regardless of the cause or for the results obtained from the use of such information. S&P DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall S&P be liable for any direct, indirect, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with subscriber s or others use of the S&P US index data. 2 Rediscover Global Opportunities

5 2] Understanding Equity Markets It s hard to read beyond the headlines and make sense of financial markets today. But equity markets don t behave any differently today than they did in the past. We looked at equity markets from 1928 and found similar trends. LESSON 1 THE MARKET ALWAYS CRASHES We studied the monthly change in stock prices for the Dow Jones Industrial Average index and S&P 500 Index dating all the way back from January 31, 1928 till September 30, Stock prices fell as frequently as 10% once every 17 months, and as much as 30% once in a lifetime. Bloomberg (Dow Jones Industrial Average Index, S&P 500 Index) 7 from January 31, 1928 September 30, x 22x 13x 1x Once every 17 months Once every 4 years Once every 7 years Once every 86 years -10% -15% -20% LESSON 2 THE MARKET ALWAYS BOUNCES BACK Despite ongoing volatility and economic uncertainty, equity markets often bounce back to scale new heights. By trying to guess exactly when to invest, investors may miss out on a market recovery. Missed opportunities like these can reduce earnings potential. Event Source: Ned Davis Research 8. Reaction Dates Reaction Date % Gain/Loss -30% DJIA Percentage Gain Days after Reaction Dates Market Crash of 1929 October 11, 1929 November 31, Financial Panic of 1987 October 2, 1987 October 19, Iraq invades Kuwait August 2, 1990 August 23, Asian Stock Market Crisis October 7, 1997 October 27, WTC and Pentagon Terrorist Attacks September 10, 2001 September 21, Iraq War March 19, 2003 May 1, The key to navigating market volatility? Develop a good investment plan and stick to it. There are times when what you are doing is uncomfortable many don t have the intestinal fortitude. For those with patience and belief the rewards are great. Sir John Templeton 4. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. There is no assurance that any projection, estimate or forecast will be realized. 6. Source: Franklin Templeton Investments Global Investor Sentiment 2014 Survey results. 7. Source: Bloomberg (Dow Jones Industrial Average Index, S&P 500 Index). 8. Source: Ned Davis Research Group, Inc. Rediscover Global Opportunities 3

6 3] Rediscover Global Opportunities After two years of decline in growth, the world is slated to bounce back in Global growth slowed in the last 5 years. The next 5 years is likely to be unlike the preceding 5 years. World GDP is expected to grow by 32% to $97 trillion by World s GDP 9 (USD) $97 Trillion $73 Trillion 32% $62 Trillion 19% $38 Trillion 63% Est. 9. Source: IMF World Economic Outlook, October Copyright By International Monetary Fund. All Rights Reserved. 4 Rediscover Global Opportunities

7 What is Powering Global Growth? Trends to Invest in for the Future Emerging markets will continue to grow exponentially, creating an enlarged new population of consumers and redefining investment outlook for the future. But do not give up on developed markets: Ongoing innovation in developed markets is opening up a new world of opportunities in manufacturing and healthcare sectors. INNOVATION Innovation drives growth Cloud computing, robotic surgery Nano technology, green energy Gene therapy and regenerative medicine Infrared technology CONSUMPTION Mass urbanisation is transforming emerging markets Rising wages Higher spending power Demand for luxury goods GLOBALIZATION ENERGY Energy boom in the U.S. Driving down prices of natural gas Industrial renaissance taking place in the U.S. HEALTHCARE Aging becoming a global concern Healthcare investment will rise Growing consumption of pharmaceuticals and eldercare services INNOVATION DRIVES GROWTH 10 Patents growth hits two-decade record in Number of applications filed worldwide: 2.35 million. Patent applications in 2012 (fastest growth in the past 18 years): +9.2%. TOP 5 COUNTRIES IN PATENT APPLICATIONS CHINA AND THE U.S. LEAD THE WORLD IN INNOVATION 10 Share in World Total Patent Applications Growth Rate of Patent Applications China % U.S % Japan % South Korea % Europe % Others % 24.0% 7.8% 5.6% 4.0% 3.8% 0.1% China U.S. Japan South Korea Europe Others PATENT APPLICATIONS FOR SELECTED TECHNOLOGIES 10 Applications worldwide and top three countries of origin in 2011, growth rate from DIGITAL COMMUNICATION COMPUTER TECHNOLOGY TRANSPORT BASIC MATERIALS CHEMISTRY +8.4% 79, U.S. 2. China 3. Japan +2.1% 134, U.S. 2. Japan 3. South Korea +0.1% 65, Japan 2. Germany 3. U.S. +3.8% 45, U.S. 2. Japan 3. Germany 10. Source: World Intellectual Property Indicators 2013 Infographic: Patent and trademark applications. Rediscover Global Opportunities 5

8 INCREASED CONSUMPTION IN EMERGING MARKETS One of the key drivers of emerging markets growth is urbanisation. By 2025, emerging markets will be home to over THREE TIMES as many urban dwellers as the developed world 11. Beyond hauling millions of people out of poverty, the shift to cities is creating a new group of new consumers, promising lucrative markets for businesses. World Population (in Billions) World Consumption ($ Trillion) Consuming Class 1 Below Consuming Class 1 Developed Markets Emerging Markets Notes: 1. Consuming class: daily disposable income is > $10; below consuming class, < $10; incomes adjusted for purchasing-power parity. 2. Projected. 3. Estimate based on 2010 private-consumption share of GDP per country and GDP estimates for 2010 and 2025; assumes private consumption s share of GDP will remain constant. There is no assurance that any projection, estimate or forecast will be realized. EUROPE S EXPORTING STRENGTH Urbanisation and rising incomes will help grow the world s consumer base, set to nearly double to 4.2 billion by 2025 from today s 2.4 billion according to the McKinsey Global Institute research 11. A large number of European companies are generating more of their revenues internationally by capitalizing on the growth of emerging markets. This fast-growing demand offers significant investment opportunities, especially to Europe s leading luxury brands. Second only to Asia, Europe exports more products as a whole than the combined total of North and South America, emerging Europe, the Middle East and Africa. Exports by Region In USD Billions as of June 30, $5,714 $5,349 $1,437 $2,024 $246 $576 Asia Europe Developed Europe Emerging Mid. East & Africa N. America S. America 11. McKinsey Global Institute analysis, McKinsey Quarterly: Winning the $30 Trillion Decathlon: Going for Gold in Emerging Markets (August 2012). Sources: Maddison, A. (2003). The World Economy, A Millennial Perspective, Paris: OECD; Website: Homi Kharas, senior fellow at the Global Economy and Development program at the Brookings Institution. 12. Source: FactSet FactSet Research Systems Inc. All Rights Reserved. The information contained herein: (1) is proprietary to FactSet Research Systems Inc. and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither FactSet Research Systems Inc. nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. 6 Rediscover Global Opportunities

9 ENERGY BOOM IN THE U.S. Rapid strides towards energy self-sufficiency in the U.S. are driving down prices of natural gas, thereby lowering the cost of manufacturing across all sectors. Driving this energy boom are technological innovations that have made extracting oil and natural gas from shale rock formations economically feasible. The U.S. Energy Information Administration projects dry natural gas production will grow by 55% from 2010 through 2040, due to strong growth in shale gas production 13. As an industrial renaissance takes place in the U.S., China s cost advantage in manufacturing over U.S. is expected to be marginal in the near future. Shale gas production leads growth in production through 2040 U.S. Dry Natural Gas Production (Trillion Cubic Feet) Shale gas Tight gas Alaska Non-associated offshore Coalbed methane Associated with oil Non-associated onshore KEEPING THE WORLD HEALTHY Almost 26% of the total population in developed markets would be aged 65 and above in 2050, compared to 15% in emerging markets. With aging becoming a global concern, we expect to see a growing demand and consumption of products and services targeting the elderly, such as healthcare, mobility devices and eldercare services. Developed Markets vs. Emerging Markets Percent and Size (in Millions) of Populations Ages 65 and Older 14 % of Total Population 30% 25% Developed Markets 20% 15% ,224 Emerging Markets 10% 5% % E 2030E 2040E 2050E 2060E 13. Source: U.S. Energy Information Administration, Annual Energy Outlook 2013 Early Release Overview. There is no assurance that any projection, estimate or forecast will be realised. 14. Source: The United Nations Population Division s World Population Prospects. Population ages 65 and above as a percentage of the total population. Population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship except for refugees not permanently settled in the country of asylum, who are generally considered part of the population of the country of origin. There is no assurance that any projection, estimate or forecast will be realised. Rediscover Global Opportunities 7

10 Build a Global Portfolio with Franklin Templeton Investments As leaders in global investing, we know where to find the world s best opportunities. We make it our job to uncover the best bargains around the world. Our 65-year history helped us establish a solid global footprint long before many other investment managers. With over 600 investment professionals across offices in 35 countries, you can be sure to tap on to our expertise in investing globally 15. Resources on the Ground, Across the Globe FRANKLIN TEMPLETON IN AUSTRALIA In 1987, Franklin Templeton Investments Australia Limited opened to serve the Australian market. We currently represent Fixed Income, Equity and Real Asset Investments to both institutional and retail investors. With offices in Sydney and Melbourne, we provide our clients with a local perspective and support. FIXED INCOME AND EQUITY SOLUTIONS Franklin Templeton Investments Australia Limited offers the following world-class equity and fixed income solutions for advisers and their clients: Fixed Income Franklin Templeton Multisector Bond Fund Templeton Global Bond Plus Fund Franklin Templeton Global Aggregate Bond Fund Equity Franklin Global Growth Fund Franklin Templeton Australian Equity Fund Templeton Global Equity Fund 15. Source: Franklin Templeton Investments. As of March Rediscover Global Opportunities

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12 Franklin Templeton Investments Australia Limited Level Collins Street Melbourne VIC 3000 Australia Level 30, Aurora Place 88 Phillip Street Sydney NSW 2000 Australia Freecall: ftclientservices@frk.com Franklin Templeton Investments Australia Limited (ABN ) (Australian Financial Services Licence Holder No ) issues this publication for information purposes only and not investment or financial product advice. It expresses no views as to the suitability of the services or other matters described herein to the individual circumstances, objectives, financial situation, or needs of any recipient. You should assess whether the information is appropriate for you and consider obtaining independent taxation, legal, financial or other professional advice before making an investment decision. Any research and analysis contained in this presentation has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Any views expressed are the views of the fund manager and do not constitute investment advice. The underlying assumptions and these views are subject to change. Franklin Templeton accepts no liability whatsoever for any direct or indirect consequential loss arising from the use of this commentary or any information, opinion or estimate herein. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not an indicator nor a guarantee of future performance. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance. A Product Disclosure Statement (PDS) for any Franklin Templeton funds referred to in this document is available from Franklin Templeton at Level 19, 101 Collins Street, Melbourne, Victoria, 3000 or or by calling The PDS should be considered before making an investment decision Franklin Templeton Investments. All rights reserved. FTIFAU GOB 07/14