Credit markets are “too pessimistic” given Europe and the U.S. aren’t likely to suffer deep recessions

Franklin Templeton Investments favors corporate bonds on prospects global growth will be driven by sustained expansion in China, and is betting yields on German bonds and U.S. Treasuries that have fallen too low. Credit markets are “too pessimistic” given Europe and the U.S. aren’t likely to suffer deep recessions, helping sustain growth in export-driven emerging economies, said David Zahn, who helps oversee $694.1 billion in assets at Franklin Templeton as a London-based portfolio manager in the fixed- income group. Debt sold by industrial companies in Europe and the U.S. is attractive, while some government bond yields have reached levels too low to be sustainable, Zahn said. “A lot of what’s been going on recently, we see more as noise, as opposed to fundamental changes,” he said. “We are positioned relatively bullishly.” China is heading for growth in excess of 8 percent next year, and along with most Asian nations has fiscal scope to cushion its economy from an escalation in Europe’s debt crisis, the World Bank said Nov. 22. The report signals that Asia, which led the world out of the 2008-2009 recession, is poised to withstand the blows from any slump in demand for its exports or pull-back in credit by European banks. U.S. gross domestic product climbed at a 2 percent annual rate from July through September, the Commerce Department said yesterday. It is expected to expand 2.2 percent next year while the euro area grows 0.5 percent, according to economist forecasts compiled by Bloomberg. “If you look at the macroeconomic fundamentals, they’re still doing what you would have expected,” Zahn said.