19 May 2020
15 May 2020
This Equity Markets issue offers a window into post COVID-19 economic recovery.
China has been much in the news recently as it handles the COVID-19 virus, and because of political and trade tensions with the West. We continue to believe China remains a growth opportunity for investors. Indeed, by early-March, the Chinese A-share market hit a 12-month high and was one of the world’s best-performing equity markets. Our emerging markets team was on the cusp of publishing fresh thoughts on China in January when Beijing locked down China’s economy to flatten the COVID-19 infection curve. In scenes that were soon replayed across the globe, factories, offices, restaurants and shops all closed. Although China’s economy is opening again, it’s not back to normal. Companies like Foxconn, which assembles iPhones for Apple, aren’t back to full employment due to sagging global demand. Overall, retail activity is improving, but discretionary spending remains muted, while lingering anxieties over infections are accelerating consumer migration to more online purchases and home deliveries. That said, the macro themes and companies our emerging markets analysts wrote of in January remain relevant to investors looking for growth opportunities today. In the near-term, we believe the business prospects for the companies we highlight have brightened. Whether trade tensions eventually prompt companies like Apple to pull supply chains out of China remains to be seen. This updated discussion offers a window into a post-COVID-19 economic recovery.
In the wake of the global COVID-19 recession, we believe China’s long-term prospects remain intact. China’s ability to innovate (not simply replicate) in areas like artificial intelligence and e-commerce offers significant long-term opportunities for equity investors.
From our vantage inside China, analyzing China-based companies starts with a top-down view of Beijing’s industrial policies, which can drive systematic risks and profitable tailwinds. “Made in China 2025,” for example, earmarked RMB¥2.08 trillion or US$282 billion in 2015 to speed up China’s shift to a new economy that’s oriented to home-grown technologies and China’s expanding middle class.
To bring aspects of our security analysis to life, our Shanghai- and Hong Kong-based analysts have divided their discussion into three companies—each highlights a macro investment theme that shapes our China equity strategies.
Franklin Templeton Thinks: Equity Markets highlights the global views our equity investment teams have across developed and emerging economies, sectors and individual companies. Each quarterly issue spotlights fresh insights that our analysts and portfolio managers bring to active security research, examining risks and opportunities from both growth and value frameworks.
What Are the Risks?
All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. 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, in addition to those associated with these markets’ smaller size and lesser liquidity. Investments in fastgrowing 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. The companies and case studies shown herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton Investments. The opinions are intended solely to provide insight into how securities are analyzed. 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. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the portfolio selection and research process. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security.
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