templeton global equity group market overview · 2015-07-27 · markit eurozone pmi composite...

Templeton Global Equity Group

Market Overview

Cindy L. Sweeting, CFA®

Director of Portfolio Management, Executive Vice President


CFA ® and Chartered Financial Analyst ® are trademarks owned by CFA Institute.

This presentation is intended only as a general market overview, is for informational purposes only and should not be construed or relied upon as investment advice. It is intended only for the Templeton

Institutional Call and is not meant for the general public, and may not be reproduced or used for any other purpose. Information provided is as of September 30, 2013, unless otherwise indicated. © 2013 Franklin Templeton Investments. All rights reserved.

For Professional Investor Use Only. Not for Distribution to Retail Investors.

May not be reproduced or used for any other purpose. For Professional Investor Use Only. Not for Distribution to Retail Investors.

1 1

Source: FactSet.

2006 2007 2008 2009 2010 2011 2012 2013

-1%

0%

1%

2%

3%

4%

5%

6%

0.10%

0.25%

0.50%

0.50%

Central Bank Interest ratesFrom 30-DEC-05 to 10-OCT-13

UK BoE Base RateU.S. Fed Funds Rate

ECB Refinancing RateBank of Japan Overnight Call Rate

Central Bank Suppression of Interest Rates is Ongoing

European Central Bank Refinancing Rate UK Bank of England Base Rate

U.S. Fed Funds Rate

December 30, 2005 to October 10, 2013


-15%

-10%

-5%

0%

5%

10%

15%

Ma

laysia

Ru

ssia

Vie

tnam

Czech R

epu

blic

South

Kore

a

Ch

ina

Hu

nga

ry

Co

lom

bia

Tha

iland

Bra

zil

Indon

esia

Ch

ile

Me

xic

o

Pola

nd

South

Afr

ica

Phili

ppin

es

Turk

ey

India

Trade Balance as a % of GDP2

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

South

Kore

a

Ch

ile

Pola

nd

Co

lom

bia

Ru

ssia

Phili

ppin

es

Ch

ina

Tu

rke

y

Me

xic

o

Tha

iland

Czech R

epu

blic

Hu

nga

ry

Bra

zil

Indon

esia

Ma

laysia

South

Afr

ica

India

Vie

tnam

Budget Balance as a % of GDP2

Emerging Markets are Not All the Same

As of 9/30/13.

1 Source: GaveKal Data, Bloomberg. As of 9/30/13. The indicator is composed of 12 components: current account balance as a share of GDP, 5-yr change in current account balance as a share of GDP, net financial

sector’s foreign assets as a share of GDP, foreign currency liquidity indicator (FX reserves + short term external debt as a share of GDP), 5-yr change in FX liquidity indicator, external debt ratio, 5-yr change in credit to

private non-financial sectors as a share of GDP, gross public debt as a share of GDP, fiscal balance to GDP ratio, inflation, exports as a share of GDP, commodity share of exports. For each component measure,

GaveKal Data ranks the countries and gives the healthiest 6 countries a +1, the weakest 6 a -1 and the others 0.

2 Source: Economic Intelligence Unit, FactSet.

-10-8-6-4-202468

Vie

tnam

Turk

ey

India

South

Afr

ica

Ma

laysia

Indon

esia

Pola

nd

Ch

ile

Bra

zil

Co

lom

bia

Hu

nga

ry

Tha

iland

Me

xic

o

Czech R

epu

blic

Ru

ssia

Ch

ina

South

Kore

a

Phili

ppin

es

Y a

xis

re

vers

ed

2012

2013E

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Vie

tnam

Ma

laysia

South

Kore

a

Phili

ppin

es

Ru

ssia

Ch

ina

Hu

nga

ry

Tha

iland

Czech R

epu

blic

Me

xic

o

Pola

nd

Co

lom

bia

Indon

esia

Bra

zil

India

Ch

ile

Tu

rkey

South

Afr

ica

Current Account Balance % of GDP2

2013E 2013E

Emerging Market Relative Balance Sheet Vulnerability Indicator¹

More Risky Less Risky More Risky Less Risky

More Risky Less Risky More Risky Less Risky

2013E data from 1/1/2013 to 12/31/2013 is projected. There is no assurance that any projection will be realized.

2


The Secular Run of Emerging Markets Has Lasted Over a Decade

1 Source: J.P. Morgan.

2 Source: FactSet, MSCI.

Past performance does not guarantee future results.

1988 1991 1994 1997 2000 2003 2006 2009 2012

50

100

150

200

250

300

350

400

Dec 31, 1987 = 100 10

15

20

25

30

35

40

06 07 08 09 10 11 12 13

EM cycle-adjusted P/E median

+1stdev -1stdev

Emerging Markets

Cycle Adjusted P/E¹ January 31, 2006 to October 9, 2013

MSCI Emerging Markets Index –

Valuations Have Retreated But

Earnings Still Look Peakish (US$)² January 31, 2000 to September 30, 2013

10

20

30

40

50

60

70

80

90

100

200

400

600

800

1000

1200

1400

2000 2002 2004 2006 2008 2010 2012

Price EPS LTM (RHS)

MSCI Emerging Markets Index –

Price Relative to MSCI AC World

Index (US$)² December 31, 1987 to September 30, 2013

16.7

3

Last Twelve Months (RHS)


Emerging Markets Have Generally Had a Decade of

Outperformance – Resulting in Value Potential in Europe

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

100

150

200

250

300

350

400

45029-Apr-1994 - 04-Oct-2013

Source: MSCI, FactSet. April 1994 = 100.


MSCI Europe Index Price Relative to the Emerging Markets Index (USD)

April 29, 1994 to October 4, 2013

4


10

15

20

25

30

35

40

45

50

55

83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

US cycle-adjusted P/E median +1stdev -1stdev

European Absolute and Relative Valuations Still Appear Attractive

Despite Rebound in 2012

United States Cycle Adjusted P/E

Europe Cycle Adjusted P/E

Source: J.P. Morgan, data ending 10/9/13.

10

15

20

25

30

35

40

45

50

83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Europe cycle-adjusted P/E median +1stdev -1stdev

10

20

30

40

50

60

70

80

90

100

83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Japan cycle-adjusted P/E median +1stdev -1stdev

Japan Cycle Adjusted P/E

22.7

14.9

23.5

5


40

60

80

100

120

140

160

180

500

700

900

1100

1300

1500

1700

1900

2100

2300

2500

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Price EPS LTM (RHS)

Major Regions Show Different Earnings Profiles

Source: FactSet, MSCI. Data ending 9/30/13. All Morgan Stanley Capital International (MSCI) data is provided "as is." In no event shall MSCI, its affiliates or any MSCI data provider have

any liability of any kind in connection with the MSCI data described herein. Copying or redistributing the MSCI data is strictly prohibited. The indices are unmanaged and therefore

do not include the deduction of fees. An individual cannot invest directly in an index. 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


MSCI Europe Index

January 31, 2001 to September 30, 2013

30

40

50

60

70

80

90

100

600

800

1,000

1,200

1,400

1,600

1,800

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Price EPS LTM (RHS)

MSCI USA Index


6

Last Twelve Months (RHS) Last Twelve Months (RHS)


80

90

100

110

120

130

2000 2001 2002 2004 2005 2006 2008 2009 2010 2012 2013

Germany

Ireland

Greece

Spain

Italy

Portugal

Europe Has Been Slowly Improving

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2000 2002 2004 2006 2008 2010 2013

Euro area current account balance

-16%

-12%

-8%

-4%

0%

2005 2006 2008 2009 2010 2012 2013

Greece Portugal

-4

-3

-2

-1

0

1

2

3

4

5

6

-6

-4

-2

0

2

4

6

8

10

12

14

Jan 92 Jan 95 Jan 98 Jan 01 Jan 04 Jan 07 Jan 10 Jan 13

Eurozone real M1,3q fwd, lhs

GDP, rhs

1 Source: Thomson Reuters, Credit Suisse research, as of June 2013.

2 Source: Berenberg, Eurostat, ECB, Berenberg calculations. Latest data, as of August 2013. Real M1 growth gives the year-on-year increase in Eurozone M1 money supply adjusted for the year-on-year

change in Eurozone consumer prices. M1 consists of currency in circulation and overnight deposits.

Unit-labor Costs in the Periphery are Increasingly

Competitive¹

The Euro-area’s Current Account Balance is at a

15-Year High¹

Cu

rren

t ac

cou

nt

bal

ance

, % o

f G

DP

7

Real M1 Money Supply Tends to Herald

Turning Points²

Eu

rozo

ne

real

M1

yoy

gro

wth

,

3 q

uar

ters

fo

rwar

d (

%) G

DP

Yo

Y G

row

th %

Current Account Deficits Have Been Shrinking in

Portugal And Greece¹

Cu

rren

t ac

cou

nt b

alan

ce, %

of

GD

P

Current account balance, % of GDP,

12m rolling sum

Rea

l eff

ecti

ve e

xch

ang

e ra

te c

alcu

late

d b

ased

on

un

it la

bo

r co

sts

(ver

sus

the

rest

of

the

euro

are

a). 2

000=

100


Europe Has Been Slowly Improving

8

-15%

-10%

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2011 2012 2013

Overall corporate Overall household

-10%

-5%

0%

5%

10%

15%

20%

2000 2002 2004 2006 2008 2010 2012

Non-financial corporations Households

US Commercial Banks¹ Year-on-Year Loan Growth

Euro Loans¹ Year-on-Year Loan Growth

-2

0

2

4

6

8

10

12

14

1992 1995 1998 2001 2004 2007 2010

M3 % y/y

Bank lending to the euro area private sector % y/y

M3 reference value (4.5%)

Euro Area M3 and Bank Lending to Private Sector² Year-on-Year Loan Growth

45

47

49

51

53

55

57

59

-30

-25

-20

-15

-10

-5

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13

Eurozone Consumer Confidence IndicatorMarkit Eurozone PMI Composite Output Index (RHS)

Eurozone Cyclical Indicators Has Been Rising³ January 2010 to September 2013

1 Source: Credit Suisse. As of 8/30/13.

2 Source: Datastream, ECB, SG Cross Asset Research/Economics. As of 8/30/13. Broad money (M3) comprises M2 and marketable instruments issued by the MFI sector.

3 Source: Bloomberg L.P.


0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Ave

rag

e R

-

Sq

ua

re

Global Correlations Have Receded From All Time Highs

9

One-Year Rolling Correlation in Weekly Price Change of 45

Markets Against the MSCI AC World Index

Source: FactSet, MSCI.



1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

10

20

30

40

50

60

70

80

90

Av erage

CBOE Market Volatility IndexFrom 29-DEC-89 to 09-OCT-13 Last: 19.6

CBOE Market Volatility Index Recession Periods - United States Average

Chicago Board Options Exchange Market Volatility Index

December 29, 1989 to October 9, 2013


Important Information All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing, including currency fluctuations, economic

instability and political developments; investments in emerging markets involve heightened risks related to the same factors. To the extent the Fund focuses on

particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of

focus than a fund that invests in a wider variety of countries, regions, industries, sectors or investments. Current political uncertainty surrounding the European

Union (EU) and its membership may increase market volatility. The financial instability of some countries in the EU, including Greece, Italy and Spain, together with

the risk of that impacting other more stable countries may increase the economic risk of investing in companies in Europe. The fund’s risk considerations are

discussed in the prospectus.

This document reflects the analysis and opinions of the Templeton Global Equity Group as of September 30, 2013, and may vary from the analysis and opinions of

other investment teams, platforms or strategies at Franklin Templeton Investments. Because market and economic conditions are often subject to rapid change, the

analysis and opinions provided may change without notice. The analysis and opinions are intended for general information only and are not a recommendation or

individual investment advice for any particular security, strategy or investment product.

All Morgan Stanley Capital International (MSCI) data is provided "as is." In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in

connection with the MSCI data described herein. Copying or redistributing the MSCI data is strictly prohibited. The indices are unmanaged and therefore do not

include the deduction of fees. An individual cannot invest directly in an index. 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.

Opinions and other market or economic information and data provided are as of the date of the commentary, unless another date is expressly indicated, and may

change without notice. Any forecasted or projected data is only an estimate as of the date indicated. There is no assurance that any forecast, projection, or estimate

will be realized. Actual results may prove to be materially different from such forecasts, projections or estimates and may change based on economic or other factors.

Statements of fact cited by the managers have been obtained from sources considered reliable but no representation is made as to the completeness or accuracy.

The managers’ assessment of a particular industry, security, sector or investment is intended solely to provide insight into the managers’ investment process and is

not a recommendation to buy or sell any security, nor investment advice. This commentary is not a complete analysis of every material fact regarding any market,

country, region, industry, security or portfolio. Although historical data is no guarantee of future results, these insights may help you understand our investment

management philosophy. The views expressed in this commentary are those of the portfolio managers of the Templeton Global Equity Group only and may vary from

the views expressed by portfolio managers representing other investment platforms or strategies within Franklin Templeton. The way we implement our main

investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. References to particular

securities are only for the limited purpose of illustrating general market or economic conditions and are not recommendations to buy or sell a security or an indication

of the authors’ or any managed account’s holdings. Such securities may or may not be in one or more Templeton-managed portfolios from time to time.

This document is intended for the use of qualified and institutional/professional investors interested in Franklin Templeton Institutional products and services only. It is

a confidential communication to, and solely for the use of, such persons and is not intended for general public distribution. Various account minimums or other

eligibility qualifications apply depending on the investment strategy or vehicle. It was prepared without regard to the specific objectives, financial situation or needs of

any particular person who may receive it. The descriptions in this document are intended to provide a general overview of our investment philosophy, strategies,

services and other related matters. Franklin Templeton Investments 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. Any performance quoted is historical. Past performance is not an indicator nor a guarantee of

future performance, and results may differ over future time periods. Investments entail risks. 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. Given the rapidly changing market environment, we disclaim responsibility for

updating this document.

10

May not be reproduced or used for any other purpose.


Appendix


CINDY L. SWEETING, CFA President - Templeton Investment Counsel, LLC

Director of Portfolio Management


Cindy Sweeting is the president of Templeton Investment Counsel, LLC and director of portfolio management for the Templeton Global

Equity Group (TGEG). Ms. Sweeting has lead portfolio manager responsibility for an institutional mutual fund, and portfolio management

responsibility for institutional separate account relationships with both global and international mandates. She also oversees the

institutional segment of TGEG's global investment management business.

Ms. Sweeting has over 28 years of experience in the investment industry, including 15 years with Templeton, having joined the firm in

1997. Based in Ft. Lauderdale, she previously served as TGEG's director of research from mid-2003 through 2007, and then served as

president of Templeton Global Advisors Limited and lead portfolio manager for certain growth funds from 2008 through 2011. She

assumed the director of portfolio management role in 2008. The director of portfolio management works closely with the CIO to

coordinate TGEG's portfolio management activities on a global basis. In 2012, she was named president of Templeton Investment

Counsel, LLC.

Prior to joining Templeton, Ms. Sweeting was the senior vice president of investments with McDermott International Investments Co., Inc.,

in Nassau. At McDermott, she was responsible for the investment department, which encompassed portfolio management and pension

administration.

Ms. Sweeting graduated summa cum laude from Georgetown University, where she earned her B.S. in business administration with a

concentration in finance. She has served as vice president of the board of directors of the International Society of Financial Analysts

(ISFA), which has now merged with the CFA Institute. She was a founding member and past president of the Bahamas Chapter of ISFA.

Ms. Sweeting is a Chartered Financial Analyst (CFA) Charterholder.

12

CFA ® and Chartered Financial Analyst ® are trademarks owned by CFA Institute.

May not be reproduced or used for any other purpose.


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