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March 2022 / MARKET EVENTS

How We’re Positioned Against Heightened Market Risks

Russia’s invasion of Ukraine has heightened market risk following an already volatile start to the year in markets.

Transcript

Russia’s invasion of Ukraine has unleashed a humanitarian crisis that has horrified the world.

The situation has created further market risk following what had already been a volatile start of the year. While the global economy should remain resilient as we reopen globally, there are five key downside risks I see, several of which are heightened because of the conflict.

First, stock valuations remain stretched compared to history, although they have softened recently.

Second, the exit from central bank monetary stimulus is definitely gathering pace.

Third, earnings growth has normalized after being exceptionally strong last year.

Fourth, and definitely most importantly, the inflation outlook has worsened. The situation in Ukraine brings a new set of supply chain issues on top of existing supply chain issues and rising commodity prices. So, consequently, there’s more inflation for central banks to contend with.

Finally, to state the obvious, Russia’s invasion of Ukraine has raised geopolitical risk sharply. The situation is just highly unpredictable. It could end relatively soon or drag on for some time.

At T. Rowe Price, our Asset Allocation Committee was positioned cautiously early in 2022, with a focus on mitigating downside risk:

So we were underweight stocks relative to bonds.

We held short duration positions in fixed income to limit exposure to rising rates.

We were overweight in equity segments where valuation and rate risk was lower.

Given our cautious stance at the beginning of the year, we have not adjusted our asset allocation positioning in response directly to the situation in Ukraine. We have reduced on the margins some cyclical risk, but otherwise we have remained on the same course we were on at the beginning of the year.

Significantly for us, however, because typically we like to lean against the wind, here we have chosen not to lean into the market weakness because we think that downside risks remain elevated. We’ll monitor developments carefully and will be ready to adjust our positioning if the situation changes. Thank you.

IMPORTANT INFORMATION

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

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