The mega-tech stocks in the US gained immense limelight in the past year due to artificial intelligence (AI) and other themes. However, Franklin Templeton suggests that overexposure to the mega-tech and the US markets comes with a lot of risks. Hence, it recommends investors to consider low-cost country ETFs for portfolio diversification.

Subsequently, Dina Ting, Head of Global Index Portfolio Management at Franklin Templeton ETFs, points out that nearly 70 countries are heading to the polls in 2024. According to her, this can add to market volatility and result in short-term economic divergence globally. “In our opinion, passive country ETFs and alternatively weighted solutions like multifactor exposures, tailored for precise implementation, can make sense for many investors in this environment,” she adds.

Franklin Templeton also highlights some dominant themes that can help investors choose the correct country ETFs. According to the asset manager, nearshoring trends have been favourable to Canada and Mexico. However, Mexico stands to benefit more when compared to the former, it says.

“A bill aimed at revamping national stock exchanges to boost trading, approved by Mexico’s congress recently, also bodes well for Latin America’s second-largest economy,” opines Marcus Weyerer, Senior ETF Investment Strategist, Franklin Templeton ETFs EMEA.

Secondly, Weyerer tells investors to consider exposure to India, besides Japan, due to the country’s economic resilience. Among other Asian countries, he highlights Taiwan and South Korea’s technological prominence as well as Hong Kong and Singapore’s leading position as global financial centres. The asset manager suggests, “Redistributing China weightings across some of these players may make sense not only from a diversification angle but also from an economic point of view.

Furthermore, the asset manager believes that the current stage of the semiconductor cycle in South Korea and Taiwan can bring diverse investment opportunities. “Both economies also appear set to benefit from more long-term structural drivers that increase chip demand,” indicates Weyerer. AI, the Internet of Things, and Metaverse are some of these long-term drivers.

Finally, Franklin Templeton also considers Brazil and Saudi Arabia as promising investment destinations in emerging markets. “Irrespective of related changes to politics and policy, significant economic trends can impact market swings, making selective diversification and targeted country selection even more important for the new year,” articulates the asset manager.

Read the complete insight here.