June 2021 / MARKET OUTLOOK
Global Asset Allocation: June Insights
Discover the latest global market themes
1. Market Perspective
Global economic growth to remain above trend this year but nearing peak levels as major economies make progress on vaccinations and reopen over the summer.
Global monetary policy outlook broadly supportive with most major central banks expected to remain on hold well into next year, although beginning to see a gradual trend toward tightening by some central banks, notably within emerging markets (EM), facing rising inflation.
Asian and European economies that have trailed in pace of vaccinations should see improved growth trajectory over coming quarters as they advance reopening and benefit from their more cyclically oriented economies.
Key risks to global markets include the path forward for the coronavirus, rising inflation, higher taxes, central bank missteps and increasing geopolitical concerns.
2. Portfolio Positioning
No changes in positioning over the period.
We remain modestly underweight equities relative to bonds and cash as the risk/reward profile looks less compelling for equities and could be vulnerable to potential setbacks in the recovery, fading policy support, rising inflation and higher taxes.
Within equities, we favour value-oriented equities globally, small-caps and EM stocks as we expect cyclically exposed companies to continue to benefit from the improvement in growth throughout the year.
Within fixed income, we continue to have a bias toward lowering duration risk and overweighting credit and inflation sensitive sectors such as high yield bonds, emerging markets debt local currency and inflation-linked government bonds.
3. Market Themes
Just Passing Through?
The Federal Reserve has been consistent in its messaging that a near-term spike in inflation pressures will be transitory and recede once COVID-related impacts fade. The latest inflation print showed that prices, as measured by core personal consumption expenditures (PCE), jumped 3.1% year over year, the highest level in three decades, due to supply chain and labour shortages, unleashed pent‑up demand and base effects. While the data showed that consumers are facing steep price increases across a range of areas, including used cars, hotel prices and air fare, these are expected to fade as pent-up demand subsides. So far, the bond market seems to believe the Fed’s transitory view; however, the risk may be that the transition takes a bit longer than markets anticipate. Labour shortages and unconstrained fiscal spending in the US could keep inflation elevated for longer, forcing the Fed and bond market to react faster than anticipated.
Easy Come, Easy Go
Global central banks were quick to act last year in response to the coronavirus pandemic, unleashing ultra-easy monetary policies, helping countries weather the economic impacts and aiding in the current growth rebound. Now on the back of more stable growth, some central banks have more recently announced plans to start pulling back on policy, including Canada and South Korea. Meanwhile, some EM central banks have already started raising rates this year, such as Russia, Turkey and Brazil; however, the motivation has been more to fend off rising inflation compounded by COVID-related shortages. While the trend in global easing appears to be behind us, the major central banks are still pledging to maintain current support well beyond next year. Despite their intentions, markets have pulled forward expectations of when they’ll act on recent data showing higher inflation. The months ahead could see more volatility as investors reevaluate how fast ‘easy’ may go.
For a region-by-region overview, see the full report (PDF).
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 written 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.