Three things we’re thinking about today
- Implications of regional conflicts on commodity prices: The impact of slower economic growth balances the impact of an escalation in the Middle East conflict on commodity prices. West Texas Intermediate crude oil prices rose in the third-quarter period,1 but have weakened in October. Liquified natural gas prices for South Korea and Japan rose in October, reflecting concerns over the potential disruptions in gas flows from the Middle East. However, with European natural gas inventories at 87% of capacity,2 the short-term impact of any supply disruption should be manageable.
- US limitations on China’s technology development: The US government recently announced an extension of its Foreign Direct Product Rule.3 The rule prevents any company from selling advanced computer chips to China. It applies to chips that use US technology, including most semiconductors. This extends the ban on the supply of semiconductor machines to include advanced chips, including those used in artificial intelligence models. We are monitoring the impact on Chinese technology companies, which have continued to manufacture increasingly advanced chips.
- China Singles Day: November 11 is known as Singles Day in Asia and is the world’s largest shopping event. It was started by China’s leading e-commerce company in 2009, and 2023 sales could exceed CNY1 trillion/US$137 billion.4 This year’s event is an opportunity for companies to adapt to the evolving demands of consumers. The emphasis is on value for money and better consumer experiences.
Endnote
- Source: Bloomberg.
- Ibid.
- Source: US Commerce department.
- Source: Franklin Templeton.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securitiesare subject to price fluctuation and possible loss of principal.
Fixed income securitiesinvolve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.
International investmentsare 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 Taiwan could be adversely affected by its political and economic relationship withChina.
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.