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Global Asset Allocation Viewpoints

October 2021

Market Perspective

As of 30 September 2021

  • Global economic growth outlook remains favorable, albeit past peak levels, balanced by further progress toward global emergence from COVID-19 shutdowns versus fading policy support and supply chain disruptions.
  • Global monetary policy is expected to continue path toward tightening, but central banks on different trajectories, with some, particularly in EM, having already acted in response to higher inflation while others continue to keep policy on hold awaiting stronger evidence of sustained growth.
  • Long-term interest rates could trend higher amid outlook for above trend growth and inflation, but upside may be limited as growth and imbalances driving inflation moderate.
  • Key risks to global markets include elevated inflation, central bank missteps, slowing China growth, supply chain disruption, increased regulatory pressures, higher taxes, and increasing geopolitical concerns.

Portfolio Positioning

As of 30 September 2021

  • We remain modestly underweight equities relative to bonds and cash as valuations look less compelling amid moderating growth and stimulus. Higher rates, rising input costs related to supply chain bottlenecks, and potential tax increases 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 unleashed pent-up demand and inventory rebuilding as supply bottlenecks and 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 given our constructive credit outlook.

Market Themes

As of 30 September 2021

More Predictably, Unpredictable

After a crackdown on internet technology and educational companies last month, risks continue to emerge out of China including the potential fallout in its massive real estate sector following missed debt payments by Evergrande–one of the nation’s largest property developers. The focused suite of regulatory actions out of Beijing are driven by efforts to balance wealth inequality and have had far sweeping impacts on sectors such as technology, education, real estate, and healthcare. At the same time, authorities have started to more aggressively pursue its 5-year plan to reduce carbon emissions by limiting coal supply, resulting in power outages, and shuttering factory activity leading to supply shortages. The degree of recent actions taken by the Chinese government combined with declining growth estimates is causing investors angst. Although unlikely to allow economic growth to fall significantly, China’s actions may force foreign investors and trading partners to reassess the risks of investing in a place that has become more predictably, unpredictable.

Evergrande’s Debt Collapse1

As of 30 September 2021

Line chart illustrating Evergrande's debt collapse by centers on the dollar

Past performance is not a reliable indicator of future performance.
1 Figures are shown in USD.
The specific securities identified and described are for informational purposes only and do not represent recommendations.
Source: Bloomberg Finance L.P.
Source: Financial data and analytics provider FactSet. Copyright 2021 FactSet. All Rights Reserved.

Actions Speak Louder than Words

Inflation is proving to be a bit more persistent and higher than many expected, putting pressure on some central banks around the globe to act. Several emerging market central banks, such as Brazil and Mexico, began raising rates over the summer to fend off higher prices and now, some developed market central banks are similarly looking to act. The Bank of England has signaled higher rates are coming soon as inflation is expected to get close to 4%, double their target. And while the Federal Reserve is planning on tapering asset purchases, it remains committed to its current rate policy, reiterating that elevated inflation levels will be “transitory”. The ECB similarly warned of not overreacting to current inflation levels, keeping current policy in place. Although most central banks believe inflation will prove temporary, prices could remain elevated for an extended period–perhaps too long for them to hold onto their words and not take action.

Global Inflation on the Rise1,2

As of 31 August 2021

Line graph showing inflation percentage by region from 2009-2021

Past performance is not a reliable indicator of future performance.
1 Figures are shown in USD.
2 Inflation is measured by Consumer Price Index.
The specific securities identified and described are for informational purposes only and do not represent recommendations.
Source: Bloomberg Finance L.P.
Source: Financial data and analytics provider FactSet. Copyright 2021 FactSet. All Rights Reserved.

Regional Backdrop

As of 30 September 2021

  Positives Negatives
United States
  • Healthy consumer balance sheets and high savings rate
  • Exceptionally strong earnings growth
  • Infrastructure spending likely to increase
  • Delta variant spread appears to have peaked
  • Elevated stock and bond valuations
  • Elevated corporate and government debt levels
  • Fed accommodation has peaked
  • Fiscal stimulus has peaked
  • Corporate taxes likely to rise
  • 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 European Central Bank to stimulate further
  • Demand from China fading
  • Microchip shortage impacting auto production rebound
Developed Asia/Pacific
  • Cyclical orientation should benefit from economic rebound
  • Strong fiscal and monetary support
  • Improving corporate governance
  • Vaccination rates have improved significantly
  • Improving political outlook
  • Weak economic growth going into crisis, driven by long-term demographic headwind
  • Demand from China fading
  • Limited long-term catalysts for growth
Emerging Markets
  • Equity valuations attractive relative to developed markets
  • Exposure to cyclical areas of economy should benefit from broad global recovery
  • Chinese regulatory actions likely to have peaked
  • Vaccination rates are improving
  • Stimulus from China is fading
  • Accommodation from central banks is fading
  • New coronavirus variants remain a threat

Asset Allocation Committee Positioning

As of 30 September 2021

Chart characterizing various equities and bonds by underweight, neutral or overweight.

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.

Portfolio Implementation

As of 30 September 2021

Chart demonstrating tactical allocation weights of various equities

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 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.
Source for Bloomberg index data: Bloomberg Index Services Limited. See additional disclosures on final page for more 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.

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