Global Integration and Asset Allocation Strategy

Franklin is a portfolio manager at Global Wealth Advisors, overseeing a diversified investment portfolio for high-net-worth clients. Recently, he has been analyzing the impact of increased global integration on asset allocation strategies. Given the growing interconnectedness among economies, Franklin is considering the effects of different asset classes and how they react under various macroeconomic conditions.

He has identified three global equity markets for potential inclusion in his strategy: the U.S., Europe, and Emerging Markets. Each market's historical performance during times of economic expansion and recession is critical for his asset allocation decision. To optimize risk-adjusted returns, Franklin is particularly concerned about covariance relationships between these markets.

As Franklin prepares to make adjustments to the portfolio's equity allocation, he seeks to apply Modern Portfolio Theory (MPT) principles and understands the importance of diversification in reducing risk. He must decide on the best strategy that considers the current market conditions influenced by global integration.