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 1. Home Page
 2. Latest Thinking
 3. Allocation Views
    

November 14, 2022


ALLOCATION VIEWS

The impact of elevated prices and the consequent tightening of monetary policy
by leading central banks are unifying concerns. Indicators of economic growth
momentum continue to point to a notable slowdown.
Download PDF
FRANKLIN TEMPLETON THINKS™

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ALLOCATION VIEWS

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PREVIEW

Political change

Some changes are anticipated, and others come as a surprise. The formation of a
new right-wing government in Italy, under the leadership of Prime Minister
Giorgia Meloni, following the snap election in September, is an example of the
former—an anticipated change that has progressed relatively smoothly. For now,
this has had a somewhat calming effect on local financial assets. The sudden
replacement of Liz Truss, leaving after seven weeks and as the United Kingdom’s
shortest-serving prime minister, was less well anticipated, but similarly
appears to have soothed market nerves. However, the challenges facing the
incoming leaders, particularly UK Prime Minister Rishi Sunak, have not become
easier. Geopolitical challenges on the European continent remain complex, as war
in Ukraine continues, and the impact on energy supply will be a challenge in the
winter(s) ahead. The economic consequences of these strains and their impact on
fiscal sustainability will remain ongoing challenges for both countries and the
region more broadly.

Of course, changes have not been confined to European politics. The US mid-term
elections could complicate the ability of the Biden administration to deliver on
its agenda, while in South America, the victory for Luiz Inácio Lula da Silva as
president-elect in Brazil will see sharp changes following the term of Jair
Bolsonaro. However, it is possibly one of the “non-changes” that is most
consequential. The re-election of Xi Jinping as General Secretary of the Chinese
Communist Party, and a consolidation of control within his faction of the party,
makes a precedent-defying third term as president appear more clearly as a
personal concentration of power. This was fully anticipated but may still have
profound consequences for relations with Taiwan specifically and geopolitics
more broadly.

In trying to make sense of a complicated world, investors discuss political
developments in the context of long-term economic trends and the global
challenges such as climate change. We at Franklin Templeton held our Annual
Investment Symposium in October, which touched on these issues among others,
including the impact they might have on economic growth and inflation. We will
publish a summary of our conclusions from the symposium this month and use them
to inform our capital market expectations over the next 10 years. As we round
off 2022, Allocation Views will continue to tie these thoughts back to our
current preferences for multi-asset portfolios.

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WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. The value
of investments can go down as well as up, and investors may not get back the
full amount invested. The positioning of a specific portfolio may differ from
the information presented herein due to various factors, including, but not
limited to, allocations from the core portfolio and specific investment
objectives, guidelines, strategy and restrictions of a portfolio. There is no
assurance any forecast, projection or estimate will be realized. Stock prices
fluctuate, sometimes rapidly and dramatically, due to factors affecting
individual companies, particular industries or sectors, or general market
conditions. Bond prices generally move in the opposite direction of interest
rates. Thus, as the prices of bonds in an investment portfolio adjust to a rise
in interest rates, the value of the portfolio may decline. Special risks are
associated with foreign investing, including currency fluctuations, economic
instability and political developments. Investments in emerging markets, of
which frontier markets are a subset, involve heightened risks related to the
same factors, in addition to those associated with these markets’ smaller size,
lesser liquidity and lack of established legal, political, business and social
frameworks to support securities markets. Because these frameworks are typically
even less developed in frontier markets, as well as various factors including
the increased potential for extreme price volatility, illiquidity, trade
barriers and exchange controls, the risks associated with emerging markets are
magnified in frontier markets. Derivatives, including currency management
strategies, involve costs and can create economic leverage in a portfolio which
may result in significant volatility and cause the portfolio to participate in
losses (as well as enable gains) on an amount that exceeds the portfolio’s
initial investment. A strategy may not achieve the anticipated benefits, and may
realize losses, when a counterparty fails to perform as promised. Currency rates
may fluctuate significantly over short periods of time and can reduce returns.
Investing in the natural resources sector involves special risks, including
increased susceptibility to adverse economic and regulatory developments
affecting the sector—prices of such securities can be volatile, particularly
over the short term. Investment in the commercial real estate sector, including
in multifamily, involves special risks, such as declines in the value of real
estate and increased susceptibility to adverse economic or regulatory
developments affecting the sector.

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. 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. Past performance
is not an indicator or a guarantee of future results.



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CONTRIBUTORS


GENE PODKAMINER, CFA

Head of Multi-Asset Research Strategies, Franklin Templeton Investment Solutions



OTHER ISSUES

October 2022

Strains Beginning to Show

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August 2022

Time to move to the cautious side

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July 2022

Growth headwinds continue to build

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May 2022

Not losing sight of China

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April 2022

Simplify the problem: A tighter focus

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Economic trends and investment themes for 2023 and beyond

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Ready for India’s growth recovery: Powered by domestic demand

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Quick thoughts: Investing for the next decade

OTHER ISSUES

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IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be
construed as individual investment advice or a recommendation or solicitation to
buy, sell or hold any security or to adopt any investment strategy. It does not
constitute legal or tax advice.

The views expressed are those of the investment manager and the comments,
opinions and analyses are rendered as at publication date and may change without
notice. The information provided in this material is not intended as a complete
analysis of every material fact regarding any country, region or market. All
investments involve risks, including possible loss of principal.

Data from third party sources may have been used in the preparation of this
material and Franklin Templeton ("FT") has not independently verified, validated
or audited such data. FT accepts no liability whatsoever for any loss arising
from use of this information and reliance upon the comments opinions and
analyses in the material is at the sole discretion of the user.

Products, services and information may not be available in all jurisdictions and
are offered outside the U.S. by other FT affiliates and/or their distributors as
local laws and regulation permits. Please consult your own financial
professional or Franklin Templeton institutional contact for further information
on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Distributors, LLC, One Franklin Parkway, San
Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com -
Franklin Distributors, LLC is the principal distributor of Franklin Templeton
U.S. registered products, which are not FDIC insured; may lose value; and are
not bank guaranteed and are available only in jurisdictions where an offer or
solicitation of such products is permitted under applicable laws and regulation.

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Franklin Distributors, LLC



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