A Globe-Trotter's Guide to Investing

GARY MOTYL, THE CHIEF INVESTMENT OFFICER OF the $90 billion Templeton Global Equity Group, part of San Mateo, Calif.-based Franklin Resources (BEN), is upbeat about the likelihood of a global economic recovery and a rebound in stocks after the meltdowns of the past year. Risks remain, but with equities trading near record-low valuations, now is a good time to buy, he says.

Motyl joined Templeton in 1981, as the third investment professional hired by the firm's fabled founder, the late Sir John Templeton. Today he manages several mutual funds and separate-account portfolios for institutional investors, in addition to serving as CIO. Barron's recently talked with him about the outlook for global equity markets. To learn why he is optimistic, read on.

Barron's: Stocks have had a rousing rally in recent months, not only in the U.S. but overseas, especially in Asia. Will it continue?

Motyl: The strong rebound in global markets reflects investor recognition of the historically low valuations at which equities have been trading since the start of 2009. This, together with evidence the global economy is bottoming, aided by unprecedented stimulus packages in almost every developed and emerging-market country, has set the stage for a significant recovery.

So the stimulus measures taken by governments are working?

Yes. There have been hundreds of individual policy initiatives announced in the past year, and it looks as though they are beginning to have an impact on economic activity. While some of the problems created in the last cycle will take several years to be resolved fully, and economic reports are likely to be mixed for a while, several indicators have turned positive recently.

Consumer confidence, for instance.

Measures of consumer sentiment have increased in countries such as the U.S., Taiwan, Sweden, Japan, South Korea and Belgium. This has been reinforced by improving manufacturing data from Hong Kong, China, Russia, and India, while GDP numbers for China and India have posted high-single-digit gains. It also appears the inventory cycle is poised to reverse. In late '08 and early '09 inventories of many goods -- raw materials, consumer electronics, clothing, pharmaceuticals -- were drawn down. There is a need to replenish those inventories, which should give a nice lift to near-term economic numbers.

Some economists fear excessive stimulus will lead to hyperinflation in coming years. Does this worry you?

Although the size of the stimulus programs and injections of liquidity around the world are cause for concern, and commodity prices have moved sharply higher. Excess capacity still exists in many industries. This, combined with high unemployment rates, should act to contain inflation for the foreseeable future.

Does that give you encouragement about the outlook for global equities?

We are optimistic on a longer-term basis. However, while still selling below historical levels on a number of metrics, equities have advanced aggressively in recent weeks, particularly in emerging markets, and significant crosscurrents will persist. Volatility has moderated from the levels of late last year, but likely will remain a feature of the market and not return to the unusually low levels that existed from 2002 through early 2007.

You have studied global equities for three decades. Have the past two or three years been the worst?

This period has been right up there with the global recession and bear market of 1974-1976, and perhaps has been even worse. That's because this time both the global economy and stock markets around the world have suffered tremendously. As in the 1970s, Wall Street is undergoing cataclysmic change. It has been very painful, especially if you look at established firms going out of business, record numbers of job losses, and a number of financial products essentially going away. Whether you're talking about Wall Street or the City of London or any other global financial center, the nature of the business has changed dramatically. That's one of the challenges investors have to deal with. How we all adjust to it will determine who survives and who doesn't.

How badly has your group been hit by the decline in global markets in the past two years?

Market depreciation was the largest driver of the significant drop in our assets. While redemptions also contributed, we have done a good job of stressing to our clients that investing with Templeton requires a long-term commitment. We've been through many different market cycles in the past 60 years, and it has never changed the way we look for undervalued securities across the globe, with a long-term perspective. In good times and bad, we look for and buy quality businesses at a discount. And we hold on to the stocks we find.