December 2020 / MARKET OUTLOOK
Global Asset Allocation: December Insights
Discover the latest global market themes
As of 30 November 2020
Digging for Value
Promising news on COVID-19 vaccines has triggered optimism for a return to normal next year, buoying deeply cyclical segments of the market that have been the hardest hit by shutdowns. November saw a strong rebound in many of these unloved sectors, including materials, energy, financials and industrials. Following a period of meaningful underperformance, a significant beneficiary of the abrupt rotation away from technology-heavy growth sectors has been emerging markets (EM) value stocks, which have more than 50% exposure to these sectors. Expectations in 2021 for unleashed pent-up global demand, increased fiscal spending, aggressive monetary policies and higher energy prices could provide a strong backdrop for cyclical companies in EM. An additional boost could come from a rebound in EM currencies, as they face less depreciatory pressure versus the US dollar. Ignored for nearly a decade, EM value companies may finally see more interest from investors as they dig for cyclical opportunities with very attractive valuations.
A wave of defaults across some highly rated—including AAA—Chinese companies with perceived state support have shaken local markets causing investors to reassess risk in the growing Chinese bond market. The Chinese corporate bond market has grown substantially over the past decade since the global financial crisis as China sought to open its capital markets to foreign buyers and increase its representation in the Bloomberg Barclays Global Aggregate Index. Although there were signs of bond market weakness heading into the coronavirus pandemic, China policymakers were forced to pull back on credit reform initiatives as economic conditions deteriorated, temporarily masking potential solvency issues. However, with the recent improvement in economic growth, policymakers have begun re-tightening financial conditions, exposing the overhang of weak corporates, many of which have been kept alive by forbearance. Chinese authorities may see the current economic strength as an opportunity to clean up weak companies, which, in the long run, could improve the perception of Chinese corporate credit markets.
After Democratic candidate Joe Biden won the US presidential election and Democrats retained control of the House of Representatives last month, markets seemingly cheered the prospects of a split government, with the US Senate likely to remain controlled by the Republicans. However, the balance of power remains uncertain, hinging on the result of two very close runoff elections in Georgia on 5 January 2021. If Republicans win either of the Georgia runoff races, they will retain control of the Senate. However, if they were to lose both seats to the Democrats, the result would be a 50/50 split in the Senate with the tie-breaker vote going to the new vice president, tipping power in favour of the Democrats. With Democrats in control of the presidency, House of Representatives and Senate, markets may begin to factor in the likelihood of more progressive policies on taxes and tighter regulation. Given the market’s strong rebound in November, driven by positive vaccine news and prospects for a balanced political environment, the market could be in for a negative shock.
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 intend ed for distribution retail investors in any jurisdiction.