Global stocks can weather low interest rates in 2017
KUCHING: Global value stocks look well positioned for the rising inflation, low-interest rate environment we expect in 2017.
We believe all signs point to fiscal stimulus and deficit spending as the next stage of policy response in a lowgrowth world. Templeton Global Equity Group
These conditions can be supportive of value and favorable to investors who actively allocate capital to companies that appear fundamentally mispriced.
According to the Templeton Global Equity Group, sectors that are likely to do well are the ones positively correlated with nominal yields, namely the financials, resource-oriented and consumer cyclical sectors that today make up much of the benchmarks for value investments.
“These are sectors that, in some instances, traded at the widest discount to the rest of the market on record as of midNovember, so we think the scope for potential recovery is material,” said chief investment officer Norman Boersma and president of Templeton Investment, Cindy Sweeting in a statement.
As of late 2016, they said evidence of a turning point in global financial markets continued to mount, potentially creating opportunities for fundamental value investors.
“We believe all signs point to fiscal stimulus and deficit spending as the next stage of policy response in a low- growth world,” they added.
Unlike monetary stimulus, which typically creates excess savings among well-to-do owners of capital, fiscal stimulus is intended to support economic growth by channeling money to those who are likely to spend it.
Yet financing growth initiatives and entitlement promises will be challenging in light of global debt levels at record heights as of midNovember, more than double the size of world economic output.
“We believe many governments can scarcely afford to let real rates rise given the state of their balance sheets, so we expect that reflationary stimulus measures will likely be accompanied by continued financial repression of interest rates to maintain a low cost of borrowing.”
The Templeton heads noted that while real rates are likely to stay low, inflation should rise, buoyed not only by deficit spending, but also by rising barriers to trade as protectionism and antiglobalisation policies potentially drive the prices of goods and services higher. Turn to Page B4, Col 4