May 2022

Global Asset Allocation Viewpoints

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Welcome to our latest Asset Allocation Viewpoints - your monthly source for actionable insights on portfolio positioning from our Asset Allocation Committee and Multi-Asset team. 

Market Perspective

As of April 30, 2022

  • Growth estimates are trending lower on heightened geopolitical risk and COVID lockdowns in China are weighing on supply chains and potentially exacerbating already elevated inflation.
  • Despite moderating growth expectations, developed market central banks are expected to advance tightening policies to combat decades-high inflation, with the US Federal Reserve leading with the most aggressive plans. The European Central Bank (ECB) accelerates ending asset purchases and considers future rate hikes, while the Bank of Japan remains steadfast on its policy of yield curve control.
  • Emerging market central banks remain biased towards tightening to fend off inflation and defend currencies, while China policies continue moving in the opposite direction to stimulate growth to help catch up to growth targets following COVID-related lockdowns.
  • Key risks to global markets include central bank missteps, commodity impact of Russia-Ukraine conflict, lingering inflation, and China balancing growth amid COVID-related lockdowns.

Portfolio Positioning

As of April 30, 2022

  • Despite lower valuations amid recent declines, we remain underweight equities given a moderating growth and earnings outlook amid a hawkish Fed battling high inflation. Within fixed income, we remain underweight bonds and overweight cash.
  • Within equities, we continued to add to real assets-related equities to provide a hedge should inflationary pressures persist longer than expected.
  • Within fixed income, we continue to favor shorter-duration and higher-yielding sectors through overweights to short-term TIPS, floating rate loans and high yield bonds supported by still solid fundamentals while keeping a cautious eye on liquidity and volatility.
  • To provide some defense against growing market risks, we further moderated our underweight to long-term US Treasuries following recent moves higher in rates.

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Market Themes

As of April 30, 2022

Where to Hide?

War, inflation, and lingering COVID impacts have set the stage for a challenging start to 2022 for investors, with both stocks and bonds down over 9% in response. While dynamic, stocks and bonds on average have a low correlation with each other and their correlation can move sharply negative during risk-off periods. However, this time is quite unique with runaway inflation sparking aggressive central bank tightening all while growth is moderating amid a world full of rising risks. These concerns of rising rates and inflation are contributing to a retreat in bonds. At the same time, rising rates and slowing growth are weighing on equity markets in a period where valuations are already above average. This unfortunate rise in stock-to-bond correlation is weighing on even the most conservative of investors. While it’s hard to gauge the path forward given the unprecedented confluence of issues facing global markets, a cautious approach is warranted, especially to mitigate more extreme tail events, including more persistent inflation or a hard landing in the economy.

Stock & Bond Correlations on the Rise1

As of 30 April 2022


Past performance is not a reliable indicator of future performance.

Sources: Bloomberg Finance L.P. and S&P. Please see below for more information about this S&P information.

Chart represents rolling 2-year correlation of monthly price changes of the S&P 500 Index and U.S. 10-Year Treasury Futures.

Walking a Tightrope

As the rest of the world is seeing fewer outbreaks and learning to cope with COVID, China, on the other hand, has faced a new wave of outbreaks forcing it to enact “zero-COVID” lockdown policies, which are taking a toll on the nation’s growth and potentially spilling over to the rest of the world. The stringent lockdowns in Shanghai, an export hub, and most recently in Beijing are weighing on the ability to transport goods, further impacting already fractured global supply chains. The market increasingly expects China to further ease monetary and fiscal policy in response to the recent weakness. However, as they do, they will not want to reflate speculative bubbles that they burst last year, most notably the housing sector. With the presidential election approaching, and President Xi Jinping up for an unprecedented third term, he seems determined to reach China’s lofty 5.5% gross domestic product target that is severely challenged by COVID lockdowns. This leaves policymakers walking a tightrope should they seek to maintain the aggressive lockdowns and reach growth targets, while providing just enough stimulus not to overheat some sectors of the market.

China’s Manufacturing & Services Data Taking a Hit2

As of 30 April 2022


Past performance is not a reliable indicator of future performance.

Sources: Bloomberg Finance L.P. and S&P. Please see below for more information about this S&P information.

Chart shows China Manufacturing PMI Index and China Non-Manufacturing PMI Index (representing Services PMI).

Regional Backdrop

As of April 30, 2022

Regional Backdrop

Click each region below for more details

  • Strong corporate and consumer balance sheets
  • Pent-up demand for services and capex


  • Fed tightening at a rapid pace
  • Elevated inflation
  • Supply chain issues limiting economic activity

  • Fiscal spending is increasing
  • Equity valuations attractive relative to the US
  • European Union unity is strengthening


  • Ukraine conflict has driven energy prices sharply higher
  • Industrial production dampened by supply chain challenges
  • Limited long-term catalysts for earnings growth

  • Attractive equity valuations
  • Improving corporate governance
  • Monetary policy remains accommodative


  • Limited long-term catalysts for earnings growth
  • Global trade remains impacted by supply chain issues, geopolitical uncertainty, and COVID

  • Chinese authorities are easing policies
  • Equity valuations attractive relative to the US


  • COVID-related lockdowns have impacted economic activity
  • Chinese regulatory actions have impacted investor confidence
  • Global trade remains impacted by supply chain issues, geopolitical uncertainty, and COVID
  • Central bank accommodation is fading

Asset Allocation Positioning

As of April 30, 2022

These views are informed by a subjective assessment of the relative attractiveness of asset classes and subclasses over a 6- to 18-month horizon.

Positioning Key

Asset Classes

Stocks are vulnerable to potential for economic weakness, tightening Fed policy and lingering inflation concerns. Earnings have held up reasonably well in 2022, but face pressure from a slowing economy.

Tighter global central bank policies and elevated inflation could continue to pressure yields higher, although the US rates market has already priced in an aggressive Fed tightening path. Credit spreads could remain volatile given continued risk-off sentiment.



Growth orientation and narrow leadership of the US market makes it more susceptible should rates rise further. However, lower representation of more cyclical sectors could be beneficial if recession concerns increase further.

Less challenging valuations and procyclical sector profile could be supportive if growth outlook stabilizes. However, the Russia-Ukraine conflict could weigh on growth outlook and supply chain improvement, particularly for Europe and emerging markets.

Valuations are attractive, but the Russia-Ukraine conflict poses a significant risk, due to rising energy costs and the impact of financial sanctions. ECB support may be waning over the coming months.

Yen weakness has been a significant headwind to performance but may stabilize from here. Attractive valuations, supportive monetary policy and improving corporate governance should provide tailwinds.

Valuations are attractive. COVID lockdowns remain a near-term headwind in China; however, the medium-term outlook appears more attractive due to prospects for more significant policy support.

Style & Market Capitalization

Relative valuations for value stocks remain attractive, but the gap has narrowed, and the cyclical outlook has weakened. Growth stocks’ stay-at-home tailwind continues to fade, and valuations continue to be pressured by higher rates.

Value stocks remain attractive but are facing weaker cyclical tailwinds and higher geopolitical risks. Meanwhile, growth stocks face higher relative valuations and more pressure from elevated inflation.

Small-cap stocks offer attractive relative valuations and still strong earnings growth. However, elevated input costs, wage pressures and heightened market volatility could challenge performance. Higher quality bias is warranted.

Small-caps balance idiosyncratic opportunities with moderating global growth. Additionally, caution is warranted due to US dollar strength and potential flight to quality that could favor large-caps.


Although slowing growth and inflation are headwinds, if inflation settles in at a higher level the sector could offer an attractive hedge. Commodity valuations are elevated, but supply shortages are likely to endure over the near to medium term. Real estate remains attractive but could be somewhat vulnerable to rising rates.


Accelerated Fed tightening is pushing shorter rates higher, while longer rates balance impacts of moderating growth, stickiness of inflation and geopolitical conflict. Spreads have retreated from recent lows, reflecting risk-off sentiment.

Central banks, such as the ECB, are expected to turn more aggressive, which could pressure rates higher. The US dollar remains supported by the Fed’s tightening and safe-haven trade.

Longer rates have moved higher, already pricing in an aggressive path of Fed tightening. The sector provides portfolio ballast in a risk-off scenario, but remains vulnerable should elevated inflation persist.

US TIPS should offer a hedge if commodities continue to be pressured higher as supply chain issues persist and Fed tightening fails to bring inflation down.

Credit fundamentals remain strong, default risk remains low and elevated commodity prices remain supportive. However, spread volatility is expected to continue due to geopolitical, inflationary and growth concerns.

Shorter-duration profile and rate resets provide some defense against from rising short rates. Solid fundamentals and demand for yield should provide tailwinds. Relative valuation is less attractive following recent outperformance.

Although EM yields look attractive, they remain challenged by broader market volatility due to geopolitical tensions, lingering coronavirus concerns, fiscal pressures and tighter central bank policies.

EM yields are at attractive levels and the currencies are cheap although vulnerable to US rates, while Fed tightening and flight to safety keep upward pressure on the US dollar.

* For pairwise decisions in style & market capitalization, positioning within boxes represent positioning in the first mentioned asset class relative to the second asset class.

The asset classes across the equity and fixed income markets shown are represented in our Multi-Asset portfolios. Certain style & market capitalization asset classes are represented as pairwise decisions as part of our tactical asset allocation framework.

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Portfolio Implementation

As of April 30, 2022


Tactical Allocation Weights


Fixed Income

Tactical Allocation Weights


1 U.S. small-cap includes both small- and mid-cap allocations.

Source: T. Rowe Price. Unless otherwise stated, all market data are sourced from FactSet. Copyright 2022 FactSet. All Rights Reserved.

These are subject to change without further notice. Figures may not total due to rounding.

Neutral equity portfolio weights representative of a U.S.-biased portfolio with a 70% U.S. and 30% international allocation; includes allocation to real assets equities. Core fixed income allocation representative of U.S.-biased portfolio with 55% allocation to U.S. investment grade.

Source: MSCI. MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

“Bloomberg®” and Bloomberg Indices are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by T. Rowe Price. Bloomberg is not affiliated with T. Rowe Price, and Bloomberg does not approve, endorse, review, or recommend Global Asset Allocation Viewpoints. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Global Asset Allocation Viewpoints.

The S&P Index is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and has been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). This product is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P Index.

Important Information

Any specific securities identified and described are for informational purposes only and do not represent recommendations.

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