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T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. T. Rowe Price has been independently verified for the twenty four-year period ended June 30, 2020, by KPMG LLP. The verification report is available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.

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Investment Insights

Global Asset Allocation Viewpoints

Portfolio Positioning

As of 30 June 2020

Balancing Act

  • We moved to neutral equities by paring our overweight as the market continued to rebound amid a still-uncertain economic backdrop.
  • While moderating our risk profile between stocks and bonds, we continue to have modest overweights in emerging market and small-cap stocks, as well as high yield and emerging market (EM) bonds where valuations remain supportive.

Market Themes

As of 30 June 2020

Double Dip?

With the coronavirus largely contained across Europe and Asia and some parts of the U.S., there is a sense that the worst of the pandemic may be behind us. As the global economy continues to reopen, many are still hopeful of a V-shaped economic recovery, as economic data such as purchasing managers’ indices are showing signs of life. Aggressive monetary and fiscal support, improved liquidity conditions, and lack of inflation provide a supportive backdrop for the rebound in economic activity. However, the recent uptick in infections in parts of the U.S. has raised fears that economic activity could once again be derailed. If these outbreaks fail to be contained and another round of lockdowns is enacted, it would deal a terrible blow to an economy already facing a severe contraction. A second wave could further paralyze business investment and consumer behavior—turning hopes for a V-shaped recovery into a W.

Composite Purchasing Managers Index
As of 30 June 2020

Past performance is not a reliable indicator of future performance.
Sources: Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. J.P. Morgan Chase & Co. Please see additional disclosures on the final page.
1EM Currency Index is represented by J.P. Morgan EM Currency Index.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Fueling the Rally

Oil prices have continued to rebound from lows reached in late April, trending near $40 USD per barrel, yet still below pre-crisis levels. Amid the virus-related shutdowns, global demand for oil was down nearly 30% year-over-year as economic activity worldwide was brought to a halt. At the same time, tensions flared between Russia and OPEC+ regarding market share, resulting in increased supply and further downward pressure on prices. As stay-at-home restrictions have eased across the globe and supply remains constrained, oil prices have rebounded. However, if a second wave of the coronavirus ends the rally in oil prices, hopes for a quick recovery in the energy sector could be dashed as we are already seeing rising bankruptcies and energy-exporting economies facing severe fiscal pressures.

WTI Oil Price
As of 30 June 2020

Past performance is not a reliable indicator of future performance.
Sources: Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. J.P. Morgan Chase & Co. Please see additional disclosures on the final page.
1EM Currency Index is represented by J.P. Morgan EM Currency Index.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

The Buck Stops Here?

The U.S. dollar (USD), a traditional safe-haven currency, has been volatile as it weighs evidence of improving global economic data against a resurgence in coronavirus infections. Over the past quarter, the U.S. Dollar Index (DXY Index) has fallen by almost 3% amid the global risk-on environment sparked by economic reopenings across the globe. However, there is no shortage of risks that could cause the USD’s recent downtrend to reverse course. Evidence of a second wave of the coronavirus growing, uncertainty surrounding the upcoming U.S. presidential election and resurfacing tensions with China could send investors flocking back to the USD. But for now, a weaker dollar could be a respite for emerging market economies and their currencies as they struggle with the impacts of the global pandemic.

U.S. Dollar vs. EM Currencies1
As of 30 June 2020

Past performance is not a reliable indicator of future performance.
Sources: Factset. Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved. J.P. Morgan Chase & Co. Please see additional disclosures on the final page.
1EM Currency Index is represented by J.P. Morgan EM Currency Index.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Regional Backdrop

As of 30 June 2020

United States

Positives
  • Unprecedented levels of monetary and fiscal support
  • Healthy consumer balance sheets prior to the crisis
  • Health care infrastructure is stronger than most regions
  • Greater share of secularly advantaged companies (e.g., cloud computing, internet retail) than rest of the world
Negatives
  • Size of country, freedom of movement, and inconsistent policies mean there is higher potential for continued outbreaks
  • Heightened political tensions
  • Elevated corporate leverage going into the crisis
  • Margins under pressure going into the crisis
  • Elevated government debt levels

Europe

Positives
  • Virus containment and re-opening strategies have been largely successful
  • Long awaited fiscal stimulus is coming
  • Monetary policy remains very accommodative
  • Equity valuations are inexpensive
Negatives
  • Weak economic growth going into crisis
  • Limited scope for European Central Bank to stimulate further
  • Lower share of secularly advantaged companies
  • Banking sector was weak going into the crisis

Developed Asia/Pacific

Positives
  • Outbreaks in this region have thus far been milder than in the rest of the world
  • Japanese companies generally hold high cash levels, meaning they have more cushion for weakness
Negatives
  • Weak economic growth going into crisis
  • Highly sensitive to global industrial production and trade trends
  • Australia holds high exposure to natural resource prices, which have weakened considerably

Emerging Markets

Positives
  • Younger population likely to be less affected by virus
  • Dovish Fed has given central banks flexibility to ease
  • USD strength has eased
  • Demand from China has largely rebounded
  • Equity valuations attractive relative to developed markets
Negatives
  • Weak health care infrastructure in many regions
  • Limited ability to enact fiscal stimulus (excluding China)
  • Trade tensions have been re-ignited
  • Highly sensitive to global industrial production and trade trends
  • Commodity prices under pressure

Asset Allocation Committee Positioning

As of 30 June 2020

Portfolio Implementation

As of 30 June 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 Limited.


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.

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.

J.P. Morgan Chase & Co.: Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2020, J.P. Morgan Chase & Co. All rights reserved.

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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© 2020 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

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