Franklin Templeton: Korea Expected to Hold Advantage in Tariff Negotiations

A Strategic Ally of the United States and a Major Investor in the U.S. Market
"100 Days of President Trump's Administration: Economic Outlook and Investment Opportunities" Webinar

"Despite the short-term headwinds caused by abrupt policy changes, from a long-term perspective, the Trump administration's economic policies?such as federal spending cuts, reduction of fiscal deficits, global trade rebalancing, tax reform, and deregulation to promote growth?could open up new opportunities."

Franklin Templeton, a global asset management firm with assets under management (AUM) totaling $1.53 trillion, assessed that although global capital markets had already anticipated the Trump administration's comprehensive approach to tax, trade, and regulatory policies in its second term, significant policy changes related to tariffs have heightened market volatility.

To navigate the increasingly uncertain market environment, Franklin Templeton held a webinar on April 23 titled "The Impact of President Donald Trump's First 100 Days on Investment Markets."

Grant Bowers, portfolio manager at Franklin Equity Group, highlighted high-quality U.S. growth stocks expected to benefit from the Trump administration's assertive economic policies.

He predicted, "As uncertainty surrounding the economic impact of tariffs, trade policies, immigration reform, government restructuring efforts, and geopolitical shifts intensifies, volatility will persist in both U.S. and global markets this year." He further emphasized, "Despite the short-term headwinds from abrupt policy changes, new opportunities can emerge from a long-term perspective."

He added, "We are selectively increasing our allocation to high-quality U.S. growth stocks that are poised to benefit from structural trends such as artificial intelligence (AI), healthcare innovation, and the revival of domestic manufacturing and industrial activity in the United States."

Todd Brighton, portfolio manager at Franklin Income Investors, stated, "In this volatile phase, we are building an aggressive portfolio by adding bonds and stocks at attractive price levels." He introduced ELNs (Equity-Linked Notes), which possess characteristics such as profitability, downside protection, and capital gain potential, as a selective investment vehicle for growth stocks. He said, "Overall, our firm is executing an agile and opportunistic strategy based on broad diversification across asset classes and sectors."

Yi Ping Liao, portfolio manager and senior research analyst for emerging markets equities at Franklin Templeton, analyzed equity markets in Asian countries such as Korea, China, and India.

Regarding Korea, he explained, "Korea, with its export-oriented economic structure, is closely linked to global supply chains. As a result, tariff issues can deliver a significant shock to economic growth rates and corporate earnings." However, he added, "Korea is a key strategic ally of the United States, and many Korean companies are making large-scale facility investments in U.S. manufacturing. This could secure Korea a favorable position in tariff reduction negotiations with the United States."

Discussing the Chinese market, he said, "From a long-term perspective, we view the current intensification of U.S.-China tariff conflicts as an extension of the decoupling trend that began during President Trump's first term. Since the trade war is negative for the Chinese economy, we are taking a cautious approach to Chinese equities."

Nevertheless, he noted, "Given China's vast domestic market, active investment in human capital, and the scale of monetary and fiscal easing, we should seek opportunities in high-quality individual stocks in the Chinese market through a bottom-up approach."

For other Asian markets, he identified the weakening of U.S. exceptionalism and the resulting potential for a weaker U.S. dollar as major risks. He anticipated that these changes could prompt asset flows from the United States to other regions. He said, "In this context, equities in emerging Asian markets, which are at the center of global economic growth, are emerging as attractive investment destinations. The valuation of Asian equities, excluding Japan, still remains undervalued compared to other regions." Among regions, he cited India as the most promising market, pointing to its large domestic market that limits the economic impact of tariffs and its advantageous position in trade negotiations for tariff reductions.

Carol Lye, portfolio manager and senior research analyst at Brandywine Global, a Franklin Templeton subsidiary, forecasted a weakening of the U.S. dollar. She said, "Immigration and tariff policies have increased the likelihood of a U.S. recession, and global growth rates are also expected to slow depending on tariff negotiations and their duration."

She anticipated that tariffs imposed on Europe and China could lower growth rates in these countries by about 1 to 2 percentage points, but this could be partially offset by fiscal stimulus measures. Regarding currency outlook, she stated, "Convergence in growth rates and fiscal policy trends between the United States and other countries could prompt a reallocation of assets from the U.S. to other countries, resulting in a weaker dollar."