CONTRIBUTORS
Investment Strategist,
Franklin Templeton Institute
Analyst
Franklin Templeton Institute
After enduring a prolonged and unprecedented series of shocks, the global economy appeared to have stabilized, with steady yet underwhelming growth rates. However, the landscape has changed as governments around the world reorder policy priorities and uncertainties have climbed to new highs.”
For decades, global supply chains have driven efficiency and resilience in global trade, benefiting consumers by providing a variety of products at affordable prices. Companies leveraged logistics, capital mobility, and trade liberalization to reduce costs and build economies of scale. However, recent crises like COVID-19, geopolitical conflicts, and trade weaponization have revealed vulnerabilities and dependencies in key sectors.
Policymakers now focus on safeguarding critical supply chains, reducing high-risk dependencies, and boosting resilience against external shocks. This shift aims to ensure long-term economic stability and competitiveness in an uncertain global environment.
Investors must develop a deep understanding of industry-specific supply chains to be able to pick the winners and avoid the losers in the next decade. It is not just about the country of origin. In a world where everything can be weaponized, the traditional measures of valuation and risk no longer apply.
The physical architecture of supply chains must change, not just to lock in future supplies of raw materials, but also to safeguard the physical and digital integrity of every step of the supply chain, in the name of national security. Foreign direct investment (FDI) will likely suffer, weakening global capital expenditure.
All these considerations are driving debates in boardrooms and investment companies around the world, with the recognition that prevailing country risk premiums will have to change, along with the mechanisms to determine them, because they do not adequately reflect the outlook.
Franklin Templeton Institute has published a white paper consisting of five chapters, each based on fundamental research, and focused on identifying sources of risk and opportunity in global supply chains:
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Hong Kong and Taiwan could be adversely affected by its political and economic relationship with China.
An investment in private securities (such as private equity or private credit) or vehicles which invest in them, should be viewed as illiquid and may require a long-term commitment with no certainty of return. The value of and return on such investments will vary due to, among other things, changes in market rates of interest, general economic conditions, economic conditions in particular industries, the condition of financial markets and the financial condition of the issuers of the investments. There also can be no assurance that companies will list their securities on a securities exchange, as such, the lack of an established, liquid secondary market for some investments may have an adverse effect on the market value of those investments and on an investor’s ability to dispose of them at a favorable time or price.
Investment strategies that incorporate the identification of thematic investment opportunities, and their performance, may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. Focusing investments in the information technology- and/or technology-related industries carries much greater risks of adverse developments and price movements in such industries than a strategy that invests in a wider variety of industries.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. 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.
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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. All investments involve risks, including possible loss of principal. There is no guarantee that a strategy will meet its objective. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where a strategy invests in emerging markets, the risks can be greater than in developed markets. Where a strategy invests in derivative instruments, this entails specific risks that may increase the risk profile of the strategy. Where a strategy invests in a specific sector or geographical area, the returns may be more volatile than a more diversified strategy.
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