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September 2023 / 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 August 2023

  • Global economic growth was mixed across regions, with inflationary pressures and central bank policies starting to diverge.
  • U.S. and Japanese economies are proving more resilient, although the U.S. is seeing evidence of cooling amid recent jobs data. While weakness is seen across Europe as they work through a mild recession and elevated, albeit softening inflation, Chinese growth is mixed as recent slowing is being met with stimulus measures amid growing concerns surrounding its property sector.
  • While global central bank tightening is likely peaking, the paths and rates of disinflation vary across regions, which is likely to lead to divergence in policy ahead.
  • Key risks to global markets include a deeper than expected decline in growth, central bank missteps, reacceleration in inflation, trajectory of Chinese growth, and geopolitical tensions.

Portfolio Positioning

As of 31 August 2023

  • We maintain a balanced view on risk with a modest underweight to equities as valuations remain elevated amid a less dire outlook for growth and expectations for peaking central bank policy.
  • We added to our overweight position in real assets-related equities, sourcing from emerging market and small-cap equities, as a hedge against inflation settling in above central banks’ targets, as well as the potential for higher commodity prices over the intermediate-term reflecting reduced capex and moderating productivity trends.
  • Within fixed income, we remain underweight bonds in favor of cash as cash offers attractive yields and liquidity should market opportunities evolve. We also have a modest overweight to long-term U.S. treasuries as ballast to risk assets.
  • Within fixed income yield-seeking sectors, we remain overweight high yield, floating rate loans, and emerging market bonds on still attractive absolute yield levels and reasonably supportive fundamentals.

Market Themes

As of 31 August 2023

A Jolt of Confidence

The most recent JOLTS1 data, a measure of labor demand, showed job openings have come down significantly and are now the lowest since March 2021, a welcomed sign for the Fed that excess demand in the labor market may finally be starting to cool. The data also showed that fewer workers were quitting their jobs and hiring broadly moderated, both moving in favorable directions for balancing the labor market and easing wage growth concerns. Layoffs were relatively flat, meaning that the labor market has cooled by removing some of the froth in demand without increasing unemployment, helping support the narrative of a soft landing. However, while wage growth data has showed evidence of slowing it is still elevated, the number of job openings per unemployed person is still high, and the labor market remains tight by historical measures with the unemployment rate at just 3.8%. So, while the recent softening jobs data has provided a jolt of confidence that the Fed may navigate a soft landing, we still have a ways to go to align the jobs market and wages with the Fed’s 2% inflation target.

Job Openings Less Unemployed Workers2

As of 31 July 2023

Job Openings Less Unemployed Workers graph

Past performance is not a reliable indicator of future performance.
1 Job Openings & Labor Turnover Survey.
2 Source: Bureau of Labor Statistics. Unemployed is defined as looking for full-time work.

Diverging Markets?

After a strong start to the year surrounding optimism around China’s reopening, recent emerging markets’ performance has disappointed. Although there have been some bright spots across EM, as some Latin American countries have successfully brought down inflation, Mexico seeing the benefits from nearshoring, and India’s growth surprising to the upside, they have largely been overshadowed by doubts surrounding China’s growth trajectory. Concerns surrounding China’s troubled property sector have re-emerged and weighed heavily on household confidence and willingness to spend. This comes at the same time as structurally rising unemployment weighs against Chinese policymakers’ multi-year efforts to move the economy away from an export-driven economy into a more sustainable, consumption-driven and domestically focused economy. In response to today’s issues, policymakers have been targeted in deploying stimulus measures such as liquidity support for property developers, relaxing some housing policies, and incremental cuts to its key policy rate, as a conscious effort to not reinflate a bubble. So, while there are pockets of opportunity in EMs, it’s likely that the broader group’s outlook will largely depend on China’s ability to restore confidence domestically and globally.

China Underperforming Other Emerging Market Countries3

As of 31 August 2023

China Underperforming Other Emerging Market Countries graph

Past performance is not a reliable indicator of future performance.
3 Source: Bloomberg L.P. Country returns are represented by the following MSCI Indices: MSCI Mexico Index, MSCI India Index and MSCI China Index. Please see Additional Disclosures for more information about this MSCI information.

Regional Backdrop

As of 31 August 2023

  Views Positives Negatives
United States N
  • Consumer spending remains strong
  • Labor market has been resilient
  • Manufacturing appears to be stabilizing
  • Artificial intelligence related spending powerful tailwind
  • Monetary policy remains very tight
  • Banking sector concerns will impact credit availability
  • Equity valuations are elevated
Canada N
  • Monetary tightening is close to a peak
  • Wage growth has moderated
  • Commodity prices could see support against constrained supply (OPEC+)
  • Consumer savings balances are fading sharply
  • Consumer leverage is elevated
Europe U
  • Inflation showing signs of cooling
  • European Central Bank close to peak tightening
  • Oil and gas prices have eased over the last year
  • Inflation remains elevated, particularly core inflation
  • Economic growth is slowing
  • Monetary policy is restrictive
United Kingdom N
  • Inflation has begun to moderate
  • Labor market remains strong
  • Economy has proven more resilient
  • Wage inflation is very elevated
  • The BoE may be forced to hike rates further
  • Fiscal consolidation may need to be accelerated
Japan O
  • Uptick in inflation catalyst for increase in wages
  • Corporate governance continues to gradually improve
  • Equity valuations remain very attractive
  • Businesses and consumers more cautious given return of inflation
  • Earnings expectations may need to be revised lower
Australia N
  • Easing inflationary pressures allowing central bank to pause
  • Housing market has been resilient despite higher rates
  • Stabilization in global growth
  • Commodity demand from clean energy/EV
  • Consumer savings balances are deteriorating
  • Upside economic surprises keeping yields higher for longer
  • Soft demand for materials from continued weakness in Chinese property
Emerging Markets O
  • Monetary tightening in most emerging markets has peaked
  • Equity valuations are attractive relative to the U.S.
  • Further Chinese stimulus is expected
  • Global trade could suffer with tighter monetary conditions
  • Chinese consumer and business confidence is fragile
  • Geopolitical risks remain elevated

O = Overweight
N = Neutral
U = Underweight

Views are informed by the Asset Allocation Committee and Regional Investment Committees (United Kingdom, Europe, Australia, Japan and Asia) and reflect the equity market.

Asset Allocation Committee Positioning

As of 31 August 2023

Asset Allocation Committee Positioning table

1 For 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.

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 2023 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.

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.
ESG and Sustainability risk – May result in a material negative impact on the value of an investment and performance of the portfolio.
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 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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