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Investment Insights

Global Asset Allocation Viewpoints

T. Rowe Price

Portfolio Positioning

As of 31 August 2019

Watching and Waiting

  • We remain underweight equities in favor of cash and bonds as downside risks remain from trade tensions and moderating global growth.
  • We are modestly overweight high yield bonds as they offer attractive income and the consistent coupon helps to buffer downside relative to equities.
  • We are overweight emerging market equities as valuations remain attractive and could find support from more dovish central banks, low inflation, and a moderation in U.S. dollar strength.

Market Themes

As of 31 August 2019

Brexit: Mess gets messier

With only weeks left until the 31 October deadline, UK Prime Minister Boris Johnson moved to suspend Parliament to thwart opposition lawmakers’ chances of blocking a no-deal Brexit, causing both consumer and business confidence to tumble. Johnson’s gamble was designed to put pressure on the EU but instead pitted himself against Parliament, which moved swiftly to block his proposed exit at any cost. While the probability of a near-term disorderly exit has significantly decreased, neither side seems to have a plan to resolve the key sticking points with Brussels. In the meantime, the move promises further economic uncertainty with another delay and likely an election this year.

British Pound Cross Rates

Five Years Ending 31 August 2019

Sources: Bloomberg Finance L.P., Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.
Please see additional disclosures on the final page.

Mind the (trade) gap

Risk assets had a turbulent August amid renewed anxieties surrounding trade, with the U.S. announcing new tariffs and Chinese authorities allowing the yuan to weaken against the dollar while halting U.S. agricultural purchases. However, markets rallied into month-end as trade rhetoric abated on both sides despite additional tariffs on key consumer goods, such as electronics and footwear, which are due to go into effect on 1 September. While a resumption of dialogue provides hope, the gap that has formed between the two sides from retaliatory tariffs has made the possibility of a near-term substantive deal even more remote. Meanwhile, trade is already weighing on growth and capital decisions and may spill over to the consumer.

Inflation: Tariffed vs. Non-Tariffed Goods

31 December 2015 through 31 July 2019

Sources: Bloomberg Finance L.P., Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.
Please see additional disclosures on the final page.

Shop till the economy drops

Amid continued manufacturing weakness and a slowing economy, the U.S. consumer appears unfazed as spending (which accounts for more than two-thirds of U.S. economic activity) grew at its fastest rate since 2014. The consumer has benefited from solid wages, a tight labor market, low interest rates, and low inflation as existing tariffs have been largely absorbed by companies to date. However, with the most recently announced tariffs that are expected to take effect in September and December being largely consumer goods focused, the consumer may no longer be immune to the trade war. If companies pass the tariff impacts on to the consumer and demand suffers, recession odds could sharply tick upward.

U.S. GDP Breakdown

Sources: Bloomberg Finance L.P., Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.
Please see additional disclosures on the final page.

Regional Backdrop

As of May 31, 2019

United States

  • Fed easing, low inflation
  • Healthy consumer spending, strong employment, and improving wages
  • Lower rates supportive of housing
  • Greater share of secularly advantaged and innovative companies (e.g., cloud computing, internet retail) than rest of world
  • Trade negotiations remain adversarial
  • Slowing economic growth with fading fiscal stimulus
  • Muted near-term earnings expectations
  • Faltering capex spending and corporate confidence
  • Late-cycle concerns: tight labor market, rising wages, and elevated margins
  • Elevated corporate and government debt levels


  • Monetary policy increasingly accommodative
  • Indirect beneficiary of China stimulus
  • Dividend yields remain strong
  • Talk of fiscal stimulus
  • Economic growth remains under pressure
  • Geopolitical risks remain elevated (e.g., Brexit)
  • Export weakness, vulnerable to trade and China growth
  • Limited scope for ECB to stimulate further
  • Banking sector remains challenged

Developed Asia/Pacific

  • Dovish stance from both the BOJ and RBA
  • China stimulus could support regional trade
  • Japanese fiscal stimulus
  • Broadly attractive valuations, particularly in Japan
  • Improving corporate governance trends in Japan
  • Highly exposed to slowing global economic growth and trade tensions
  • Japanese economic and earnings growth continue to be weak, VAT increase looms in October
  • Australia facing slowing economy with weakness in housing
  • Australian earnings facing increased margin pressure

Emerging Markets

  • Muted inflation, more dovish Fed gives central banks flexibility to ease
  • Beneficiary of Chinese stimulus
  • Equity valuations attractive relative to developed markets
  • With growing importance of tech sector, less tied to commodity cycle
  • Export-driven economies are highly vulnerable to rising trade tensions
  • GDP forecasts for EM economies continue to decline
  • Instability in several key markets (Turkey, Argentina) could persist
  • Slowing long-term China growth trajectory remains a headwind
  • China stimulus more measured and domestically focused

Asset Allocation Committee Positioning

As of 31 August 2019

Portfolio Implementation

As of 31 August 2019

Source: T. Rowe Price.
Neutral equity portfolio weights broadly representative of MSCI All Country World Index regional weights; includes allocation to real assets equities. Core global fixed Income allocation broadly representative of Bloomberg Barclays Global Aggregate Index regional weights.
Information presented herein is hypothetical in nature and is shown for illustrative, informational purposes only. It is not intended to be investment advice or a recommendation to take any particular investment action. This material is not intended to forecast or predict future events and does not guarantee future results. These are subject to change without further notice.
Please see “Additional Information” on final page for information about this MSCI information.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright© 2019, Bloomberg Index Services Ltd. Used with permission.

Certain numbers in this report may not equal stated totals due to rounding.

Source: Unless otherwise stated, all market data are sourced from Factset. Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.

Source for MSCI data: 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.

Key Risks –The following risks are materially relevant to the information highlighted in this material:
Even if the asset allocation is exposed to different asset classes in order to diversify the risks, a part of these assets is exposed to specific key risks.
Equity risk – in general, equities involve higher risks than bonds or money market instruments.
Credit risk – a bond or money market security could lose value if the issuer’s financial health deteriorates.
Currency risk – changes in currency exchange rates could reduce investment gains or increase investment losses.
Default risk – the issuers of certain bonds could become unable to make payments on their bonds.
Emerging markets risk – emerging markets are less established than developed markets and therefore involve higher risks.
Foreign investing risk – Investing in foreign countries other than the country of domicile can be riskier due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments.
Interest rate risk – when interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and the higher its credit quality.
Real estate investments risk – real estate and related investments can be hurt by any factor that makes an area or individual property less valuable.
Small and mid-cap risk – stocks of small and mid-size companies can be more volatile than stocks of larger companies.
Style risk – different investment styles typically go in and out of favour depending on market conditions and investor sentiment.

This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and 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.

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