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November 2021 / INVESTMENT INSIGHTS

Global Asset Allocation Viewpoints

Our experts share perspective on market themes and regional trends, plus insights into current portfolio positioning.

Market Perspective

As of 31 October 2021

  • While moderating, global growth to remain above trend as it continues to emerge from COVID. Supply chain disruptions and energy shortages in some regions could be near-term headwinds to growth.
  • Global monetary policy broadly on path towards tightening, albeit unsynchronized, with many emerging markets having already acted in response to higher inflation and to defend their currencies, while most developed market counterparts are more cautiously advancing towards tightening.
  • Global yield curves likely to face higher short-term rates on central bank tightening, while longer rates could be biased higher on near-term inflation concerns, although upside may be limited as growth expectations and inflation pressures moderate.
  • Key risks to global markets include persistent elevated inflation, central bank missteps, slowing China growth, supply chain disruption, energy shortages, and increasing geopolitical concerns.

Portfolio Positioning

As of 31 October 2021

  • We remain modestly underweight equities relative to bonds and cash given a less compelling risk/reward profile against a backdrop of elevated valuations with more moderate return expectations. Higher rates, rising input costs related to supply chain bottlenecks and fading monetary and fiscal policy could pose challenges to near-term earnings outlook.
  • Within equities, we continue to favor value-oriented equities globally, U.S. small-caps, and emerging market stocks as we expect cyclically exposed companies to benefit from a supportive global growth profile, coupled with pent-up demand and inventory rebuilding as COVID concerns abate.
  • Within fixed income, we continue to favor shorter duration and higher yielding sectors through overweights to high yield bonds and floating rate loans supported by our constructive credit outlook.

Market Themes

As of 31 October 2021

Running on Empty

Just as the global economy is finally gaining traction after delta variant setbacks, some economies are facing severe energy shortages, with energy prices up over 70% since last year. The impacts are being felt across Europe, which is facing shortages of natural gas, threatening to leave households without heat as winter approaches. Meanwhile China, which cut coal production to meet carbon emissions initiatives, has quickly reversed course as the cutbacks created shortages, leading to fears of moderating growth. In the U.S., although not seeing the same degree of supply concerns, fuel prices have more than doubled since last year amid stronger demand and lower production levels. What has also been exposed amid this energy crunch is the pace of the transition from traditional energy sources to renewables. While the push toward green initiatives continues, economies will need to balance decommissioning traditional sources of energy as they replace with renewables, otherwise economies could find themselves running on empty, particularly if faced with future shocks.

Commodity Prices 1,2

As of 31 October 

Commodity Prices

Past performance is not a reliable indicator of future performance.
1 Figures are shown in USD.
2 Prices are reprsented by the S&P GSCI Index. The S&P GSCI 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 bySPDJI, 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 GSCI index.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

On Back Order

Supply chain concerns have reached a crescendo recently as skyrocketing demand is overwhelming already strained supply chains, threatening to introduce the difficult combination of high inflation and slowing economic growth. Companies are citing the supply chain bottlenecks at every link— including labor shortages, backlogs at ports, increased delivery times, and limited trucking availability—leading to increased input costs and concerns about impacts on corporate margins. While higher wages may help consumers offset costs and companies with pricing power may be able to push through higher input costs for now, it looks like consumers and companies will have to navigate inflationary pressures well into the middle of next year. Although some of the supply chain pressures have eased in recent weeks, with the price of shipping containers reaching a peak, the holidays are just around the corner and companies will likely still be struggling to get products on the shelves as consumers are faced with limited supply and higher prices.

Shipping Costs 1,3

As of 31 October

Shipping Costs

Past performance is not a reliable indicator of future performance.
1 Figures are shown in USD.
2 Prices are reprsented by the S&P GSCI Index. The S&P GSCI 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 bySPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nordo they have any liability for any errors, omissions, or interruptions of the S&P GSCI index.
3 Cost are represented by the Baltic Dry Index (BDI).Source: Bloomberg Finance L.P.
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Regional Backdrop

As of 31 October 2021

  Positives Negatives
United States
  • Healthy consumer balance sheets and high savings rate
  • Strong earnings growth
  • Infrastructure spending likely to increase
  • Delta variant spread appears to have peaked
  • Supply chain issues are weighing on economic growth
  • Elevated stock and bond valuations
  • Elevated corporate and government debt levels
  • Fed accommodation has peaked
  • Fiscal stimulus has peaked
Europe
  • Higher exposure to more cyclically oriented sectors that should benefit from economic recovery
  • Monetary policy remains accommodative
  • Fiscal stimulus likely to increase
  • Equity valuations remain attractive relative to the US
  • Limited long-term catalysts for growth
  • Limited scope for ECB to stimulate further
  • Demand from China fading
  • Elevated energy prices and supply chain issues are weighing on economic growth
Developed Asia/Pacific
  • Cyclical orientation should benefit from economic rebound
  • Strong fiscal and monetary support
  • Improving corporate governance
  • Vaccination rates have improved significantly
  • Attractive equity valuations
  • Weak economic growth going into crisis, driven by long-term demographic headwind
  • Demand from China fading
  • Limited long-term catalysts for growth
  • Elevated energy prices and supply chain issues are weighing on economic growth
Emerging Markets
  • Attractive equity valuations
  • Exposure to cyclical areas of economy should benefit from broad global recovery
  • Chinese regulatory actions likely to have peaked
  • Vaccination rates are improving
  • Accommodation from central banks is fading
  • New coronavirus variants remain a threat
  • Heightened political risk

Asset Allocation Committee Positioning

As of 31 October 2021

Asset Allocation Committee Positioning

1For 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. For a representation of how the overweight and underweight tactical decisions are implemented across our Target Allocation franchise, please see page 4.

FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

Portfolio Implementation

As of 31 October 2021

Portfolio Implementation

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 2021 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 noliability 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 orfinancial 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 anyfuture 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 Global Aggregate Index 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 affiliatedwith 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.

IMPORTANT INFORMATION

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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A Disciplined Investment Approach in Pursuit of Compounding
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