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Investment Insights

Global Asset Allocation Viewpoints

T. Rowe Price

Portfolio Positioning

As of 31 January 2020

Holding Steady

  • We maintained a modest overweight to equities as evidence suggests global growth is improving from last year’s levels while still supported by central bank policies.
  • Within equities, we remain overweight markets outside the U.S., including emerging markets and global ex-U.S. value stocks based on attractive relative valuations and potential upside in currencies, notably among emerging markets.
  • Within fixed income, we maintained exposure to higher-yielding sectors, such as floating rate loans, which should be supported with the Fed on hold and sufficiently supportive growth.

Market Themes

As of 31 January 2020

Pandemic Threat

The coronavirus outbreak has become a worldwide health crisis, impacting lives across the globe. The uncertain extent of the outbreak has caused a sell-off in risk assets. Many have compared this health emergency with the Severe Acute Respiratory Syndrome (SARS) outbreak in 2002-03 but note stark differences in the increased size of the Chinese economy and how integrated the country is in supply chains worldwide. Another key difference is that the MSCI All Country World Index (in USD) had lost nearly 20% in 2002, just before SARS, compared with a 27% surge in 2019, putting today’s market at risk for a larger correction. As the virus continues to spread, it remains to be seen if it will be a temporary shock to the global economy or have more long-lasting impacts. While China’s initial steps to support its economy may provide temporary relief for the markets, volatility is likely to persist around the news flow.

MSCI China Equity Index

As of 31 January 2020
Figures are in USD

Past performance is not a reliable indicator of future performance.
Sources: MSCI, Bloomberg Finance L.P., financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.
Please see “Additional Disclosures” on final page for information.

Consumer Getting Frugal?

U.S. gross domestic product (GDP) growth for Q4 2019 came in at 2.1%, matching estimates and potentially solidifying investor confidence in the improving global growth narrative. Net exports led the way due to an unusual and temporary 9% plunge in U.S. imports, resulting from the trade war. It is important to note that the tariffs simply reduced U.S. demand for imports, which increased net exports, as opposed to an increase in U.S. exports and production as the catalyst. Continuing to look under the hood, the steady headline number may be masking some soft spots in consumer and business spending. With tax cuts and government spending from 2017 and 2018 now behind us, the economy has been reliant on the U.S. consumer to buoy markets. We have now seen consumer spending moderate over recent months, and while hard to call it a trend at this point, it is certainly worth watching, particularly as unemployment remains low and wages are improving.

U.S. Real GDP Growth

Breakdown by Expenditure
As of 31 December 2019

Past performance is not a reliable indicator of future performance.
Sources: MSCI, Bloomberg Finance L.P., financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.
Please see “Additional Disclosures” on final page for information.

Back in the Game?

At its January meeting, the Fed kept interest rates on hold but stated that it would take measures to combat global disinflation, implying a dovish path for rates. With the coronavirus outbreak threatening to stifle global growth, market sentiment indicates that the Fed may need to step back in, now pricing in at least one rate cut by the end of 2020. Amid the dovish shift in sentiment, the three-month to 10-year part of the yield curve has inverted for the first time since October 2019, further signaling fears that the nascent recovery in growth may stall. While acknowledging that the Fed is closely monitoring current risks, Chairman Powell indicated that it would take a longer-term threat to growth to re-engage the Fed. While hopeful the virus outbreak crisis proves temporary, markets are at least suggesting that the Fed may need to get off the bench and start warming up.

Probability of Fed Rate Changes

By December 2020 Meeting
As of 31 January 2020

Past performance is not a reliable indicator of future performance.
Sources: MSCI, Bloomberg Finance L.P., financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.
Please see “Additional Disclosures” on final page for information.

Regional Backdrop

As of 31 January 2020

United States

  • Fed likely on hold, inflation low
  • Growth expected to stabilize, hard data remains muted
  • Healthy, albeit muted, consumer spending
  • Strong employment and improving wages
  • Lower interest rates driving a modest rebound in housing
  • Pause in trade war escalation
  • Greater share of secularly advantaged companies (e.g., cloud computing, internet retail) than rest of the world
  • Political uncertainty
  • Modest economic growth
  • Weak capex spending and corporate confidence
  • Late-cycle concerns: tight labor market, rising wages, and corporate margins under pressure
  • Elevated corporate and government debt levels


  • Monetary policy remains very accommodative
  • Services sector of the economy resilient
  • Dividend yields remain strong
  • Political uncertainty waning
  • Economic growth is challenged, with notable weakness in the German manufacturing sector
  • Limited scope for ECB to stimulate further
  • Export weakness, vulnerable to trade and China growth
  • Banking sector remains weak
  • Potential for political turbulence remains

Developed Asia/Pacific

  • Stabilizing global economic outlook would be supportive for export-driven economies
  • I mproving corporate governance trends in Japan
  • Fiscal stimulus enacted in Japan
  • Australian housing market stabilizing
  • Potential sharp slowdown in demand from China
  • Highly sensitive to global industrial production trends and trade tensions
  • Market may be pricing in an unrealistic level of support from BOJ and RBA
  • Earnings growth remains tepid

Emerging Markets

  • Muted (but rising) inflation, dovish Fed has given central banks flexibility to ease
  • Easing trade tensions
  • Equity valuations attractive relative to developed markets
  • With growing importance of tech sector, less tied to commodity cycle
  • Negative impact of coronavirus
  • Commodity prices under pressure
  • Instability in several key markets could weigh on sentiment
  • Long-term China growth trajectory remains a headwind
  • China stimulus more measured than in previous slowdowns

Asset Allocation Committee Positioning

As of 31 January 2020

Portfolio Implementation

As of 31 January 2020

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 Disclosures” on final page for information about this MSCI information.
Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright© 2020, Bloomberg Index Services Ltd. Used with permission.

Additional Disclosures

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 2020 FactSet. All Rights Reserved.

Used with permission of Bloomberg Finance L.P.

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.

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.

Important Information

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.

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