Strategy & Practice Management

Franklin Templeton: Seeking Income and Uncovering Opportunities in 2023

Franklin Templeton sets out its investment outlook, focusing on the trends and opportunities in the U.S. and Asia amid tighter financial conditions. Ed Perks, Chief Investment Officer, Franklin Income Investors, and Ricky Chau, Portfolio Manager, Franklin Templeton Investment Solutions, outline what investors could expect for the rest of 2023 concerning U.S. interest rates, inflation, as well as the fixed income and equity markets in the U.S. and Asia.

Commenting on U.S. market outlook and investment opportunities, Ed Perks, Chief Investment Officer, Franklin Income Investors, said:

"Following the U.S. Federal Reserve's rapid rate hikes, we see that inflationary pressures in the U.S. are showing signs of easing. While additional rate hikes are likely necessary, the U.S. economy continues to display resilience, coupled with positive global dynamics such as China's reopening. Moreover, we are also not seeing much evidence of recessionary conditions today given the strength of the U.S. labour market. With the downward trajectory of inflation, we anticipate that any recession will likely be shallow.

"Although the impact of tightening financial conditions remains uncertain as we go through 2023, the current interest rate environment also provides expanded opportunities for investors to search for yield within the fixed income market. We continue to favor fixed income, particularly investment-grade corporate bonds and U.S. Treasuries, for their attractive yields, risk profiles and total return potential. High quality bonds offer significant downside protection should any recession prove deeper than expected.

"We believe that having a broad equity exposure remains important for diversification purposes and to hedge against any potential market events. While earnings expectations are starting to come under pressure, we see that some companies continue to show resilience and strong stock performance. Overall, we believe that the fundamentals in the U.S. market remain strong, and the investment backdrop should become more constructive. With longer-term risks of inflation, possible monetary policy normalization, and potential for growth deceleration, taking a nimble and dynamic allocation approach can help in the search for yield across various asset classes in 2023."

Commenting on Asia, Ricky Chau, Portfolio Manager, Franklin Templeton Investment Solutions, said:

"Central banks in Asia have greater leeway regarding the pacing of tightening, as the inflationary pressures in Asia are relatively mild. We see opportunities in Asian fixed income markets due to high average credit quality. We are also optimistic about China's rapid restart. The reopening of China's economy and rising demand for regional travel will likely support Asian economies. We see a high degree of resilience in Asian markets, which provides investors with growth potential and diversification benefits."