Cut out the day-to-day noise and look at the facts; perceived market weakness is an advantage say investment managers gathered at the fourth annual Outlook and Opportunities Forum presented by Franklin Templeton Investments Corp.
The event, held yesterday in Toronto, is an opportunity created by the company to inform existing and potential investors, and help them make their decisions, says the company’s president and CEO, Don Reed. The forum is tied to the annual general meeting of the Templeton Growth Fund, now celebrating its 50th year in Canada. “It’s fun to be 50,” Reed told the audience.
In addition to reviewing the events of the past 50 years and how they affected the performance of the fund, Reed, manager of the Templeton International Stock Fund also discussed European market performance, global interest rates, production strength, and the rebound in European confidence levels.
“Central bank interest rates are at historically low levels. Even if they rose 150 basis points they would still be low on a historical level.” He says this will fuel growth, and it’s one of the reasons he says the company is quite bullish on the markets.
Other managers at the event included:
- George Morgan, the Nassau, Bahamas-based lead manager of the Templeton Growth Fund;
- Juliette John, lead manager of the Bissett Dividend Fund and co-lead manager of the Bissett Income Trust and Dividend Fund;
- Eric Takaha, the San Mateo, California based co-lead manager of the Franklin High Income Fund and Franklin Strategic Income Fund;and
- Singapore-based Mark Mobius, lead manager of the Templeton Emerging Markets Fund.
Morgan delivered a message of “tempered optimism”. Corporate profits, he says are very strong, real estate is overheated and oil prices are high, but valuations overall are still attractive. “Valuations are still attractive,” he says. “We’re not expecting a renewal of the dark days of 2000.”
John says Canada is in good shape with budget and fiscal surpluses and a federal government that she expects will show restraint in spending to maintain these surpluses. Despite earlier concerns, she says Canadian exporters have managed far better than analysts expected given the strength in the Canadian dollar, and there is a solid recovery underway in corporate earnings, lead by energy and the financial services sectors.
Overall John says the market is a little expensive trading at 18 times earnings, but she says it’s still a stock pickers market. “In Canada, corporate profits are on the rise, we are witnessing the beginning of an equity recovery and equity valuations are more attractive than bonds. This improving environment should lead to some good opportunities, especially for dividend paying stocks,” she says. “The key is to find the right dividend-paying stocks with dependable and sustainable dividends.”
Takaha’s take on the bond market is also upbeat. He says inflation remains very low by historical standards. Although labour productivity is on a bit of a tear, he says he wouldn’t be surprised to see it stick, contrary to the typical drop visible when markets pick up. In the short term he expects interest rates will continue on a path of gradual but consistent increases. Long term rates he says have already adjusted. “The markets have been anticipating a rise in rates,” he says.
Even in the low interest rate environment, Takaha says there are still some good opportunities for fixed income investors, especially among high yield corporate bonds. “Long term rates are at a reasonable level. Credit quality at companies is very strong.”
In emerging markets, Mark Mobius says the growth story is still very much in tact. Inflation, “the scourge of lower income people” is still low, and the narrower yield spread -– the difference between the U.S. federal interest rates and rates being paid by government bonds — shows that people are becoming more confident about investing in emerging markets. According to Mobius, currencies in emerging markets remain undervalued, and labour costs are compelling, as are company valuations.
Globally, he says commodity prices have gone too high, driven largely by demand from China and India. Although he says commodity prices will correct themselves, he expects they will still plateau at a higher level.
The most exciting part of the picture however is the emerging consumer societies. Although television sets, personal computers and telephone subscriber numbers are still very low on a per capita basis, growth has been rapid and the potential to grow further is huge. “GDP growth, controlled inflation and currency stability are providing a strong base in the emerging markets sector. More importantly, valuations remain low and we are able to find some good bargains,” he says.