Global Asset Allocation: December Insights

Yoram Lustig , Head of Multi-Asset Solutions, EMEA


As of November 30, 2019

Let’s Get Cyclical!

Cyclical stocks have had an impressive comeback since September, outperforming defensive stocks as investors have become increasingly more confident in the global economy. Trade war abatement, improvement in economic data, and higher bond yields have allowed sectors such as financials and industrials and business services to recover, while other more rate‑sensitive sectors such as utilities and real estate have lagged. Global equities outside the U.S., which are more trade‑dependent, have also seen a pickup as progress in trade talks has improved sentiment. Although it is difficult to identify catalysts that can support a sustained rally in cyclicals, a potential Phase I U.S.-China trade deal could boost global risk‑taking.

What Lies Beneath?

While equity markets are reaching all‑time highs, investors in the lowest‑quality portion of the high yield market (CCCs) are demanding the highest credit spreads in over three years. A range of challenges, such as secular shifts in consumer spending and low commodity prices, are weighing on some lower‑tier companies, causing their spreads to balloon. Fortunately, the broader high yield market has seen its overall quality increase in recent years, with BBs making up nearly half the market. While the risks among CCCs appear contained for now, these companies will be increasingly vulnerable to a downturn.

Changing of La‑Garde

As markets question the effectiveness of monetary policy and its diminished range of tools, particularly in the eurozone, the new European Central Bank (ECB) chief, Christine Lagarde, is calling for a new policy mix to combat slowing economic growth and weak inflation. With interest rates already at extremely low (negative) levels and bond buying back, she believes it is an attractive time for countries to increase fiscal spending to provide another means to boost growth. This is easier said than done, as countries with budget surpluses, such as Germany and the Netherlands, have been reluctant to increase their debt levels. If it does materialize, fiscal spending could augment monetary policy by increasing the number of bonds available for the ECB to purchase.


For a region-by-region overview, download the PDF.



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.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.  

It is not intended for distribution to retail investors in any jurisdiction.