Stephen Dover, Chief Market Strategist at global investment giant Franklin Templeton and head of the Franklin Templeton Institute, has expressed a strong positive outlook for markets outside the United States, with a particular focus on Japan and emerging economies like India. In a detailed interview, he outlined why global investors, especially Americans, should diversify their portfolios and how India stands out as a compelling long-term structural story.
US Recession Fears Overblown, But Diversification is Key
Addressing widespread concerns about a US recession triggering a global slowdown, Dover offered a nuanced perspective. He noted that recession predictions have persisted for five years without materializing, largely due to massive economic stimulus. The consensus among strategists, including Franklin Templeton, is that a recession is unlikely in the coming year.
However, he cautioned against complacency, pointing to economic uncertainty, potential upside surprises in inflation leading to stagflation, and geopolitical risks. "While you don’t want to be there when a bubble pops, you also need to participate in the upside, or you risk losing money overall," Dover explained. This environment, he argues, makes diversification away from concentrated US markets, especially from the overvalued 'MAG 7' tech stocks, absolutely critical.
India's Case Strengthened by Trade Deal and Independence
Dover emphasized that India presents a prime opportunity for this diversification. India's economy is less correlated with the US and enjoys more independence than many other markets, which would help insulate it from a US downturn. He specifically highlighted the potential impact of a trade deal between India and the US.
"Any clarification on the deal is likely to be positive for the markets, unless it’s severely negative, which I don’t expect," he stated. More importantly, he stressed that it is in the long-term strategic interest of both nations to remain close partners. While acknowledging recent "bumps" in the relationship, he is optimistic it will get back on track, a resolution that would encourage foreign investor flows into India.
India vs. China: Structural Long-Term Play vs. Tactical Opportunity
Dover drew a clear distinction between India and China for investors. He framed China as more of a tactical, shorter-term investment opportunity, suitable for a six-month to one-year outlook based on valuation. In contrast, he positions India as a structural, long-term investment deserving of a five to ten-year horizon.
"If I’m asked which market is the better long-term investment, I actually think it’s India," Dover said, advising global investors to be overweight on the country. He acknowledged that India has been relatively expensive compared to other emerging markets and saw some foreign capital outflows, partly due to political discord. However, he believes India's premium is justified by its unique economic structure, policy stability, and growth prospects.
Rupee Weakness a Concern, But Fundamentals Remain Strong
The strategist identified the rupee's weakness in 2025 as a key factor keeping some foreign investors on the sidelines. Unlike many emerging market currencies that strengthened, the rupee depreciated, largely due to trade tensions. Continued weakness could deter foreign investment in both equity and fixed income markets.
Despite this, Dover remains positive on India's fundamentals. He cited government stability, pro-growth policies, support for infrastructure and manufacturing, a supportive RBI driving credit growth, and a positive capex cycle. He expects earnings downgrades to stabilize and highlights the financial sector as poised for a strong recovery. His local team also sees significant potential in mid-cap stocks.
In conclusion, Dover's message centers on prudent, risk-adjusted returns through diversification. With the US market expensive and concentrated, he sees emerging markets, and India in particular, as a natural destination for capital seeking growth, stability, and balance in an uncertain global landscape.
