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JULY 2019

Market and data disconnects

The Fed effect

Shifts in global growth

Finding defensible space

GLOBAL INVESTMENT OUTLOOKFRANKLIN TEMPLETON THINKSTM

Midyear outlook: Reining in risk

Equity markets continued to march higher in the

first half of 2019, despite trade uncertainties and

recessionary fears. An abrupt change to a more

dovish stance among central bankers has recently

provided fresh tinder to the equity fire. But does

a looser policy stance signal there are cracks in the

global economy’s foundation?

Our senior investment leaders share their views

on investing in uncertain times and how their

outlooks have changed from earlier this year. They

weigh in on market divergence, whether there

is simply too much focus on the US Federal

Reserve (Fed), where they see pockets of opportu-

nity and how they are looking to play defense.

Discussion topics within:

• Market and data disconnects

• The Fed effect

• Shifts in global growth

• Finding defensible space

Stephen H. Dover, CFA Head of Equities

Michael Hasenstab, Ph.D. Chief Investment Officer,

Templeton Global Macro

Edward D. Perks, CFA Chief Investment Officer,

Franklin Templeton

Multi-Asset Solutions

Sonal Desai, Ph.D.Chief Investment Officer,

Franklin Templeton Fixed Income

Featured senior investment leaders

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3Midyear outlook: Reining in risk

Ed PerksWhen I think about what we have experienced so far in 2019, the crosscurrents we are seeing in the markets really stand out to me. There is a real disconnect or disagreement happening between the markets and the data.

As equity markets continued to advance, we are a bit more risk averse because a slight deceleration in global growth has taken place this year, especially in the United States of late. That’s a concern to us. The ques-tion is where the slowing is coming from. Is it a lagging effect of the series of US interest-rate hikes we experienced in 2017 and 2018? Or is it a function of other issues globally? But whatever the cause, it’s the uncertainty gripping markets today that is giving us pause.

Michael HasenstabThe last 10 years have seen a unique period of financial returns. We don’t think investors should get accustomed to those dynamics always existing. Interest rates and inflation aren’t always going to be low, and bonds and stocks shouldn’t always make money at the same time. In fact, we have seen some examples of simultaneous declines in both bonds and equities in recent quar-ters that should highlight the importance of active management.

There’s a need to build portfolios that have idiosyncratic allocations— customized investment ideas that are not correlated to broad market beta. It’s also crucial to recognize

how interest-rate risks have become embedded across the asset classes after a decade of extraordinarily loose monetary policy. Interest-rate risks don’t end with US Treasuries; they’re baked in throughout the financial markets.

Sonal DesaiWhen we are talking about risks, we have to distinguish between real risks and financial market risks. Because to me, going back to what you were saying, Ed, I have seen a deceleration in economic activity for sure. But if I look around the world at each of the major blocs—the euro area, emerging markets, the United States—yes, there has been a deceleration in growth, but it’s still above potential.

I think it’s almost premature to assume global growth is slowing. On the other hand, the way central banks are reacting—in particular the Fed— worries me. As soon as we are in a position where we are right now—where the equity market actually reacts more positively to bad economic data— it means it is reacting to the potential for interest-rate cuts from the Fed, not based on what the actual data are telling us. That, for me, is a worry— the disconnect.

Stephen DoverI’ve heard so many questions around what the Fed is going to do rather than on earnings or corporate fundamen-tals—the traditional things we look at as equity investors. We saw equities spike

Q: It’s midyear 2019, and a lot has happened since January. Let’s assess what has impacted your views of investment opportunities and risks in today’s markets.

EQUITY MARKET GAINS HAVE BEEN SUPPORTED BY US FED NEWS Exhibit 1: Select Index Performance Comparison of two-day gains following Fed news and year-to-date gains in 2019

Past performance is not a guarantee of future results.

Sources: Franklin Templeton Capital Market Insights Group, FactSet and S&P Dow Jones. Indices shown in cash USD. Fed events: Jan 4, 2019 Fed chairman indicates it ‘will be patient’ with monetary policy as it watches how economy performs; June 4, 2019 Fed chairman speaks at the “Conference on Monetary Policy Strategy, Tools, and Communications Practices” sponsored by the Federal Reserve, Chicago; and June 19, 2019 Federal Open Market Committee (FOMC) Meeting press release is distributed. For illustrative purposes only; not representative of any Franklin Templeton fund’s portfolio composition or performance. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses and sales charges.

25%

0%Total Year-to-Date GainsTwo-day Gains Following Fed’s News

5%

10%

15%

20%

S&P 500 Dow Jones NASDAQ

8.8%7.9%

10.5%

17.5%

14.6%

20.7%

Midyear outlook: Reining in risk4

Sonal DesaiWe shouldn’t focus simply on the rate hikes or cuts, in my view. Yes, there have been a series of US rate hikes over the past few years. But if I look at the size of the Fed’s balance sheet, it’s still about US$4 trillion. That is the asset side. The liability side of the Fed’s balance sheet is essentially sitting as excess reserves. So in a sense, we have a lot of contingent liquidity available. You can have increases in interest rates, but still have fairly liberal credit. These are some of the reasons why I feel that while there is some softening in the US economy, it’s definitely not enough for me to think we are nearing a tipping point.

Another very frequent rationale or reason for recessions historically has been an overexuberant economy, with rising inflation and an over-tight-ening Fed. We haven’t seen the inflation, and although I think we’ll see

up after Fed Chairman Jerome Powell’s comments in January, where he shifted to a more dovish stance, and then again in June. It’s a “Powell put.”1 That is, currently the market is pricing in rate cuts this year, so if there is a cut, the markets will probably react positively. But if there isn’t, we will likely have a temper tantrum. That’s the world we are living in right now. About 50% of the increase in the US equity

more, we probably won’t see an over-tightening Fed. This has to be one of the most dovish Feds out there.

Ed PerksI think we would all agree we prefer the Fed doesn’t act simply to appease markets. We prefer the Fed to act because there is further tangible decel-eration in economic activity or if trade tensions escalate to a point where deceleration would be implied for the second half of the year and into 2020.

Stephen DoverI would add that while we haven’t seen meaningful inflation in the broader economy, we have seen asset price inflation, which has been spurred on by recent speculation of interest-rate cuts. But if the Fed is also concerned about financial market bubbles, it has more options than it has taken to address that aspect. For example, the

market this year happened within the two trading days following Powell’s dovish comments (Jan 4–7, June 4–5 and June 19–20).

And part of that disconnect—if you look at the US equity market—earnings have not expanded, so why is the market up? It’s price-to-earnings multiple expansion2, and that’s typically linked to interest rates. Obviously, we

Fed could change margin requirements, which allow investors to buy with borrowed money.

Sonal DesaiThe Fed has a dual mandate: to foster stable inflation and maximum sustainable employment. But there seems to be a de facto third mandate: to sustain flourishing financial markets. I find that a little disturbing. Looking at what the Fed has done, I read Powell as a pretty cautious guy. I cannot believe from a financial stability perspective the Fed is comfort-able with the equity market rallies we have seen based on pricing in massive quantities of rate cuts. I believe the Fed should have been a lot more preemptive in terms of rate hikes than it has been so far. In its attempt to pacify the markets, I believe the Fed keeps trading less volatility today for greater volatility—and financial risks—later down the line.

would prefer the equity market to go up because of earnings growth, not Fed rhetoric.

Ed PerksAnd as a result of this uncertainty, from a multi-asset perspective, we have actually reined in risk a bit. The most obvious way to do that in a multi-asset portfolio is by pulling back a little on equities.

Q: We started the year anticipating the end of global quantitative easing (QE) and US interest-rate hikes. Now the Fed and other central banks appear to be shifting to a more dovish stance, indicating rate cuts could be on the horizon. What are your thoughts about where global interest rates will go from here?

5Midyear outlook: Reining in risk

Sonal DesaiThe markets right now are looking at trade issues, and in the second half of the year trade could provide a shock. But keep in mind, the first impact in terms of tariffs is on prices. I have gone on record as calling the “trade war” a phony war essentially. We have been waiting for this “war” to explode in our faces for the administration’s entire term and it hasn’t happened yet.

Michael HasenstabThe deterioration in trade negotiations between the United States and China certainly raises the risks for broader economic disruptions, but not to the extremes that markets have been pricing. Our baseline is for trade agree-ments in the second half of 2019, but the tail risks for “no-deal” scenarios and ongoing tariff tensions have moderately increased. Nonetheless, the market response is a bit overdone in my view—markets are overvaluing longer-term US Treasuries and over-stating the probabilities for a near-term contraction in the US economy. The probability of slower growth in the second half of 2019 has increased, but the likelihood of a recession still remains quite low.

Stephen DoverI think the first thing to understand about trade is that when you set a tariff on another country, it isn’t a tax on the other country—it can effectively be a tax on the consumer buying the end product. So we need to be straight about that. It doesn’t mean it won’t hurt the other country, but it does mean

increased prices in most cases, and also erodes profit margins for compa-nies. That could actually be deflationary, depending on whether there are substi-tutes for the product.

Sonal DesaiThis is a discussion we are having a lot on our team right now. Profit margins absolutely would be impacted. There’s actually a little petri dish out there which acts as an example, or harbinger if you will, of the impact of tariffs—washing machines. Many of us (particularly in the developed world) own washing machines, and the United States has had a 20% tariff on imported washing machines in place for more than a year. So what actually happened? Prices have risen. But what I found really interesting is that while prices rose on virtually all washing machines (even domestic ones), people continued to buy them. Maybe eventually, as we hit the second round of tariffs, American producers will invest more in factories, or eventu-ally, demand will drop.

Stephen DoverI think that’s the point we are making. If you look at the statistics in terms of how much these tariffs affect trade, it’s very small. But it’s the uncertainty that businesses—and investors—don’t like. I recently spoke with a friend who works for a manufacturer that has operations in China, and it moved manufacturing to Mexico just before the tariffs. Businesses don’t know what to do. It’s so hard for companies to predict how to invest. What is best for the equity market is some level of

certainty so companies can make long-term investment decision about supply chains. Two years ago, the United States lowered business taxes and lowered regulation; we had a highly pro-business environment. And now we have taken some pretty big steps backward in that regard.

Sonal DesaiBut on the issue of global growth and trade, there was an interesting sort of conflation with respect to global growth and global trade and the correlation and causation between the two. Between 1996 and 2006 or so, global trade was growing on an annual basis at around 7%, while global growth was around 3.7%. And then, in the more recent 10-year period, global trade has been growing at less than half of that—about 2.8%—while global growth has still been at around 3.6%. So, supply chains have changed. I think it’s still too early to get really concerned in a big way about global growth decelerating, aside from a few regional pockets.

Ed PerksI think the theme of some of this conversation is that the potential for disruption is high—whether it be equity markets or other areas of the economy. As it relates to portfolios that we manage, we think about how we can have some flexibility, a means of handling a higher level of volatility in the markets. I recall the equity downdraft we experienced in May that was then flipped on its head by some very clear dovish statements out of the Fed.

Q: A lot of uncertainty has come from the potential for an all-out trade war. What are your concerns about this potential market and economic risk?

Midyear outlook: Reining in risk6

Sonal DesaiI think there has been a bit of a divide between what I would consider economic sentiment indicators and hard data. Absolutely we are getting some easing on some of the hard data, which by the way, I would expect. When you see the level of uncertainty we are seeing about business invest-ment and capital expenditure, it would make sense for GDP growth to draw back a bit. But I am hesitant to call this the beginning of the “the end” because I really don’t see a trigger for a significant downturn.

I think we need to see more poor data— beyond just a couple of reports—to

actually validate this pessimism about growth. Three months from now, if we are sitting together and we have seen several disappointing non-farm payroll numbers, then our outlook on the economy will look a bit different. And we think if we see tariffs on another US$300 billion of goods coming from China, some price pres-sures are likely to emerge. To me, that is a part of the reason why, at least in the fixed income space, being defen-sive does not necessarily mean going long duration3, certainly not right now.

Ed PerksUS economic growth certainly could be decelerating as the impact of prior

fiscal stimulus diminishes. So, we have pivoted in terms of our investment strategy. Incrementally, we have moved toward a more defensive tilt, as opposed to where we were in the early

part of the year.

Stephen DoverPast recessions were largely a function of our industrial economy. Now the US economy is more service-based and less prone to economic cycles. The next recession is likely to come from a policy mistake, in my view. Since the equity markets are at high price-to-earn-ings ratios, they are sensitive to what the Fed does which puts more focus on the Fed than in the past.

Q: A lot of investors remain concerned about an impending recession. How do you view the risk of recession now and what should investors consider about the current environment?

GLOBAL GROWTH EXPECTED TO EASE IN 2019 Exhibit 2: Contribution to global GDP growth 2008–2019F

Sources: Franklin Templeton Capital Market Insights Group and International Monetary Fund, as of April 2019. Data based on Purchasing-Power-Parity (PPP). There is no assurance that any projection, estimate or forecast will be realized.

7%

6%

5%

4%

3%

2%

1%

0%

-1%

-2%2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F

China Eurozone USA Latin America Other Developed Emerging + Frontier IndiaGlobal Total Growth

4.92%

6.51%6.28%

5.14% 5.20% 5.44%

4.43% 4.39%

5.68%5.86%

5.08%

0.36%

7Midyear outlook: Reining in risk

Ed PerksWe have negative rates again in Japan and in Germany, and a lot of uncertainty around Brexit. I’m curious where we all see opportunities and risks in Europe, particularly with fewer opportunities for stimulus than in the United States.

Michael HasenstabThe eurozone project was essentially a political concept with economics bolted on. But the lack of a fiscal union makes the monetary union very difficult to maintain longer term. Now a lot of public sentiment appears to be shifting away from the idea of a common Europe—rising nationalism, rising populism and simmering frustra-tions over immigration policy. Any pullback on political coordination will only make it harder to keep the monetary union together.

That political cohesion is now being tested by the macro environment; economic activity is slowing, fiscal imbalances are widening and structural issues remain unresolved. That makes the eurozone more vulnerable to a financial shock today than it was eight years ago. There doesn’t appear to be the same political will to bail out countries with fiscal imbalances like there was during the credit crises in 2011. Unresolved structural and political risks across Europe make the euro more vulnerable than its current valuation reflects—we expect it to weaken.

Sonal DesaiI’m not a part of the camp which thinks that the euro area is necessarily going to

go the way of Japan, which has seen prolonged deflation. I do worry about the euro area a fair deal, but it’s not an imminent worry, it’s an ongoing issue. The European Central Bank (ECB) has pursued very easy monetary policy. I would consider the ECB the only adult in the eurozone room, so therefore, it is responsible for preventing another eurozone debt crisis.

I would also add to what Michael said about populism. In parts of Europe we have social populism, and I’m calling it “social” because it’s really very focused on immigration. In the case of Italy and many countries in Europe, there’s this huge tendency for social populism to drift towards economic populism, and we are seeing that in the case of widening budget deficits.

Stephen DoverWe don’t think Europe is going into recession, although it isn’t booming either. From an equity investor standpoint, we look at European compa-nies that are global companies. It’s very hard to find companies that are truly local in Europe, unless you are looking at really small companies. We look at where their income comes from, but if there’s a slowdown in global growth, that’s going to be hard on global companies as well. For example, if you look at the United Kingdom’s equity market, it looks like a reasonable market and has outperformed many predictions this year. However, you have this hangover of Brexit, and we just really don’t know how that’s going to turn out. So the United Kingdom is a place where we think there’s potential opportunity, but there are also some downside risks there.

Looking at Germany, its economy is actually very tied to China. So we believe you have to look at the entire global picture when investing in Germany, and it’s struggling right now. We are also worried about the political side, and to Michael’s point, the economic structure of the eurozone. Our team has had conversa-tions about that, in terms of idiosyncratic risks out there that we really can’t predict.

Sonal DesaiI think if we just look at the eurozone as a single entity, it can be misleading—let’s put it that way. Italy unsurprisingly is one of the places which gives us the most concern. But Spain, for example, has done all the right things coming out of crisis and is one of our preferred spaces as bond investors. Meanwhile, to me, Germany represents a combination of concerns about populism and the weakness of Chancellor Angela Merkel in the current environment. Merkel really drove most of the positive results in terms of defusing the financial crisis in Europe a decade ago, but she doesn’t have that moral authority anymore. There is no clear leader.

In Europe, we think there are countries where populism makes it extremely difficult to be all-in as an investor, and there are other countries which are definitely improving stories. Right now, it’s much harder to talk about complete asset classes or complete regions as being positive or negative; it’s really a country-by-country approach.

Q: Let’s sort through the risks from global to regional. Which parts of the global markets are you watching closely?

Midyear outlook: Reining in risk8

Ed PerksIt’s a very difficult time for investors, because some of the base economic theory that historically has led market cycles is taking a bit of a backseat to things that become very difficult to analyze, predict or prepare for. So we have to think deeply about that and, ultimately, take actions in our portfolios that come back to the ques-tion: “How can we manage in a flexible way that lets us be tactical?”

Stephen DoverEd, you are somewhat indifferent about investing on the equity side or on the debt side. Can you talk about how you see debt changing over these last few years and what your concerns are around that?

Ed PerksThat’s certainly been a topic of discus-sion. There has been a narrative— and I think the market ran with it a bit more than it needed to—where we have seen increased levels of nonfinan-cial corporate debt in particular. I think the thing that’s given us a bit more comfort is that we have had a really favorable fundamental back-drop. The economy has been growing, corporate fundamentals have been solid, profit margins have been at record highs and cash balances on corporate balance sheets has been strong. And interest rates have been incredibly low.

Just looking at the absolute level of debt doesn’t capture the whole picture though. When you think about all these other factors, when you think about the cost of debt, the interest burden

that’s put on corporate income state-ments is minimal. It’s manageable. And that’s given us a lot more comfort in terms of opportunities within the debt portion of the capital stack.

We know periods of elevated volatility will be with us, and at some point we have to be realistic about the potential rewards that we will get by investing in different asset classes. And then, once again, to be tactical, to have that opportunity to be flexible in our mandates—that’s something that we are really emphasizing.

Sonal DesaiI think that brings it back to the idea of being active and not just buying the market, because I think increasingly there isn’t a single market that I’d want to buy right now. It’s a pretty scary time to be looking at some of these markets if you are just going to go out and buy the entire thing as in a broad market index fund. When we think about spread sectors—if you believe like I do that the underlying asset, which is Treasuries, is vastly over-valued—your absolute return in terms of how much you are being rewarded to carry that risk just starts looking very unattractive.

In my view, if you’re looking at the corporate sector, this is a time to start thinking in terms of keeping your duration short.

Ed PerksI think that’s an important point of discussion, focusing on being tactical in duration exposure, because investors really were rewarded to have duration these last six or seven months.

Sonal DesaiI would say that is very much the way I would see it. Really focusing a lot on making sure you are not getting locked into positions which are going to be adversely affected by the overvalu-ation of the underlying asset.

Stephen DoverWe talk about duration in bond markets, but equity markets have duration as well. So you can attempt to bring in duration by moving more towards dividend stocks, for example. US markets have changed a lot—technology now is a much bigger portion of the US market and, rather ironically, the dividend growth we have seen over the last couple of years has come from technology companies. That wouldn’t

Q: How do you think about positioning portfolios defensively to address these tumultuous times?

We know periods of elevated volatility will be with us, and at some point we have to be realistic about the potential rewards that we will get by investing in different asset classes.”— Ed Perks

‘‘

9Midyear outlook: Reining in risk

have been expected. So, again, you’ve got to be careful just looking back at long-term trends because the makeup of the market has changed. The tech sector generally does not avoid divi-dends the way it did in the 1990s, when returning capital was essentially an admission of guilt by companies that they did not have a better use of cash. The tech sector typically has a lower dividend yield than the bond proxies, but due to the commitment to

dividends by some of its mega-cap constituents, tech is now the biggest contributor to S&P 500 dividends in dollar terms.

One of the concerns I have about the question of allocation is there is sort of this presumption that people have a pool of money or pension or something to allocate, but I think a lot of our clients are actually accumulators. Their biggest investment is their income stream and their ability to invest over

the next 20 or 30 years. If you look out long term, I think equity should be able to perform—at least that’s been the case historically. So if we are asked whether we think it’s a good idea to move to cash and get out of the markets, that historically has been (with a very few exceptions) a really bad move. The way we see it, we could continue systematic investing and perhaps shorten duration. Being defen-sive within investment categories, instead of taking your money completely off the table.

Sonal DesaiIt’s perhaps a different definition of being defensive than most people have. But to me, at these valuations, being defensive means actually being short duration, but not being entirely in cash. Especially against a backdrop where you don’t see a crisis as imminent, you want to make sure you are in a position of having the flexibility to be nimble when opportunities arise.

SectorInformation Technology

Financials

Health Care

Consumer Staples

Industrials

Energy

Consumer Discretionary

Communication Services

Utilities

Real Estate

Materials

TECHNOLOGY HAS BEEN THE BIGGEST CONTRIBUTOR TO DIVIDENDS IN 2019 Exhibit 3: Sector dividends as a percentage of S&P 500 dividends January 1–June 21, 2019

Sources: Franklin Templeton Capital Market Insights Group and Ned Davis.

16.0%

14.1%

12.2%

11.6%

9.5%

9.0%

7.6%

7.0%

5.3%

4.8%

2.8%

Endnotes 1. A “put” is an options-related term. In this sense, a “Powell Put” refers to the point where market participants think Fed Chairman Jerome Powell would step in with stimulus, should the equity market fall too far. 2. Multiple expansion: when the price-to-earnings ratio expands, the price for the same amount of earnings increases. The price/earnings ratio is the stock price divided by its earnings per share.3. Duration is a measure of the sensitivity of the price (the value of principal) of a fixed income investment to a change in interest rates. Duration is expressed as a number of years.

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

Issued in the U.S. by Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com - Franklin Templeton Distributors, Inc. is the principal distributor of Franklin Templeton Investments’ 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.

Australia: Issued by Franklin Templeton Investments Australia Limited (ABN 87 006 972 247) (Australian Financial Services License Holder No. 225328), Level 19, 101 Collins Street, Melbourne, Victoria, 3000. Austria/Germany: Issued by Franklin Templeton Investment Services GmbH, Mainzer Landstraße 16, D-60325 Frankfurt am Main, Germany. Authorised in Germany by IHK Frankfurt M., Reg. no. D-F-125-TMX1-08. Tel. 08 00/0 73 80 01 (Germany), 08 00/29 59 11 (Austria), Fax: +49(0)69/2 72 23-120, info@franklintempleton.de, info@franklintempleton.at. Canada: Issued by Franklin Templeton Investments Corp., 5000 Yonge Street, Suite 900 Toronto, ON, M2N 0A7, Fax: (416) 364-1163, (800) 387-0830, www.franklintempleton.ca. Netherlands: FTIS Branch Amsterdam, World Trade Center Amsterdam, H-Toren, 5e verdieping, Zuidplein 36, 1077 XV Amsterdam, Netherlands. Tel +31 (0) 20 575 2890. Dubai: Issued by Franklin Templeton Investments (ME) Limited, authorized and regulated by the Dubai Financial Services Authority. Dubai office: Franklin Templeton Investments, The Gate, East Wing, Level 2, Dubai International Financial Centre, P.O. Box 506613, Dubai, U.A.E., Tel.: +9714-4284100 Fax:+9714-4284140. France: Issued by Franklin Templeton France S.A., 20 rue de la Paix, 75002 Paris France. Hong Kong: Issued by Franklin Templeton Investments (Asia) Limited, 17/F, Chater House, 8 Connaught Road Central, Hong Kong. Italy: Issued by Franklin Templeton International Services S.à.r.l. – Italian Branch, Corso Italia, 1 – Milan, 20122, Italy. Japan: Issued by Franklin Templeton Investments Japan Limited. Korea: Issued by Franklin Templeton Investment Trust Management Co., Ltd., 3rd fl., CCMM Building, 12 Youido-Dong, Youngdungpo-Gu, Seoul, Korea 150-968. Luxembourg/Benelux: Issued by Franklin Templeton International Services S.à r.l. – Supervised by the Commission de Surveillance du Secteur Financier - 8A, rue Albert Borschette, L-1246 Luxembourg - Tel: +352-46 66 67-1- Fax: +352-46 66 76. Malaysia: Issued by Franklin Templeton Asset Management (Malaysia) Sdn. Bhd. & Franklin Templeton GSC Asset Management Sdn. Bhd. Poland: Issued by Templeton Asset Management (Poland) TFI S.A.; Rondo ONZ 1; 00-124 Warsaw. Romania: Issued by Bucharest branch of Franklin Templeton Investment Management Limited (“FTIML”) registered with the Romania Financial Supervisory Authority under no. PJM01SFIM/400005/14.09.2009,, and authorized and regulated in the UK by the Financial Conduct Authority. Singapore: Issued by Templeton Asset Management Ltd. Registration No. (UEN) 199205211E. 7 Temasek Boulevard, #38-03 Suntec Tower One, 038987, Singapore. Spain: FTIS Branch Madrid, Professional of the Financial Sector under the Supervision of CNMV, José Ortega y Gasset 29, Madrid, Spain. Tel +34 91 426 3600, Fax +34 91 577 1857. South Africa: Issued by Franklin Templeton Investments SA (PTY) Ltd which is an authorised Financial Services Provider. Tel: +27 (21) 831 7400 ,Fax: +27 (21) 831 7422. Switzerland: Issued by Franklin Templeton Switzerland Ltd, Stockerstrasse 38, CH-8002 Zurich. UK: Issued by Franklin Templeton Investment Management Limited (FTIML), registered office: Cannon Place, 78 Cannon Street, London EC4N 6HL Tel +44 (0)20 7073 8500. Authorized and regulated in the United Kingdom by the Financial Conduct Authority. Nordic regions:Issued by FTIS Stockholm Branch, Blasieholmsgatan 5, SE-111 48, Stockholm, Sweden. Tel +46 (0)8 545 012 30, nordicinfo@franklintempleton.com FTIS is authorised and regulated in the Luxemburg by the Commission de Surveillance du Secteur Financier and is authorized to conduct certain financial services in Denmark, in Sweden, in Norway and in Finland. Offshore Americas: In the U.S., this publication is made available only to financial intermediaries by Templeton/Franklin Investment Services, 100 Fountain Parkway, St. Petersburg, Florida 33716. Tel: (800) 239-3894 (USA Toll-Free), (877) 389-0076 (Canada Toll-Free), and Fax: (727) 299-8736. Investments are not FDIC insured; may lose value; and are not bank guaranteed. Distribution outside the U.S. may be made by Templeton Global Advisors Limited or other sub-distributors, intermediaries, dealers or professional investors that have been engaged by Templeton Global Advisors Limited to distribute shares of Franklin Templeton funds in certain jurisdictions. This is not an offer to sell or a solicitation of an offer to purchase securities in any jurisdiction where it would be illegal to do so.

Please visit www.franklinresources.com to be directed to your local Franklin Templeton website.

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