Monthly Asset Allocation Update

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Hello, I’m Yoram Lustig. Here’s our May 2026 asset allocation update, where I’ll highlight the key investment themes shaping our outlook and how we’re positioning portfolios.

First, geopolitical risk in the Middle East.
The conflict involving Iran is disrupting global energy markets and adding uncertainty. Higher energy prices, along with pressure on other commodities, are contributing to inflation. This makes it harder for central banks to cut interest rates, and could weigh on global growth.

That said, markets remain resilient. Strong corporate earnings, continued AI-related investment, and the strength of the US economy are providing support. As a result, we remain modestly overweight equities and other risk assets, such as high yield—but we are watching closely, as markets may be underestimating risks.

Second, positioning for an energy shock.
Global investing gives us flexibility. We are tilted towards equity markets that are better able to absorb higher energy prices. The US, as a net energy exporter, is relatively well-positioned. China has also diversified its energy sources and can benefit from structural growth drivers like AI. In contrast, Europe remains more vulnerable due to its reliance on imported energy.

Third, higher government bond yields.
We expect ongoing pressure on government bonds, driven by persistent inflation and more hawkish central banks. Government spending may also have to rise to cushion economies against a more persistent energy shock. As a result, we remain underweight.

This creates a challenge for diversification, as both equities and bonds can struggle during inflation shocks. Our approach focuses on broad global diversification, active management, and alternative diversifiers such as the US dollar and gold.

In summary,
We remain cautiously constructive on risk assets, while staying alert to geopolitical and inflation risks.

Thank you for joining us—and we’ll see you again next month

Global asset allocation - as of May 2026

*For pairwise decisions in style, market capitalisation (size) and currencies, positioning within boxes represents positioning in the first‑mentioned asset class relative to the second asset class.
T. Rowe Price Europe and UK Regional Investment Committees inform the global asset allocation views. This material is not intended to be investment advice or a recommendation to take any particular investment action.
As of 31 May 2026.

Transcript

Hello, I’m Michael Walsh and I am pleased to share our June 2026 monthly asset allocation update. As we head towards the end of the first half of the year, I’ll highlight the key investment themes shaping our outlook and how we’re positioning portfolios.

First, equity markets globally continued to rally in May.
May was another strong month for stock markets – globally up 5% for the month. The turbulence of March seemed far in the rear view mirror as strong corporate earnings and reasonable economic news kept investor sentiment upbeat. Global equities are now up 12% for 2026 to date, after gains of over 20% last year. The outlook for stocks continued to be debated internally in recent weeks given the speed of the run up. However, we are comfortable maintaining a small overweight position across equity markets worldwide. The size of the position reflects the tension between decent fundamentals, constructive earnings outlook and fiscal stimulus, against elevated valuations and ongoing geopolitical tensions in the Middle East.

Second, equity market winners earlier in 2026 have been mixed more recently.

Some of the market broadening seen in the first quarter in 2026 has been reversed in recent weeks. In particular, tailwinds from the shift to agentic AI have boosted the prospects of growth companies in the US. While scepticism over the sustainability of massive capex spending continues, the market has generally reacted positively to the results and future plans of the technology hyperscalers. Demand for AI infrastructure has boosted semiconductors and other related areas, meaning markets such as South Korea and Taiwan are amongst the best performers year to date. The shift in market sentiment away from US technology seems to have lost momentum, and fiscal stimulus, reshoring and tax changes should all continue to boost US large cap growth stocks. As a result, we have increased exposure, notably at the expense of UK equities.

Third, we remain sceptical on the outlook for high quality fixed income markets.

The new chair of the Federal Reserve does not look to have much of a honeymoon period ahead. Central banks globally are likely to face an unpleasant trade off between inflation expectations and economic activity, as the impact of the Middle East conflict looks to persist into the summer. Despite recent rises in yields, we continue to be cautious on the outlook for duration within fixed income. We retain overweight positions in shorter duration high yield bonds globally. We also find the yields on local currency emerging market debt more compelling.

Thank you for joining us, and we’ll see you again in July for our next update.

Michael Walsh, CFA, CAIA®, FIA Solutions Strategist

May 2026 Investment Insight

Global Asset Allocation: The View From Europe

Discover the latest global market themes

By Yoram Lustig, CFA, PRM™

May 2026 Investment Insight

Monthly Asset Allocation Update – May 2026

Our latest market perspectives and portfolio positioning insights

By Yoram Lustig, CFA, PRM™

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Monthly Asset Allocation Update – June 2026

Global asset allocation - as of May 2026

Transcript

Global Asset Allocation: The View From Europe

Monthly Asset Allocation Update – May 2026