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Global Asset Allocation Viewpoints

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

Market Perspective

As of 28 February 2023

  • Global growth is proving resilient in the face of tighter monetary policies, however, impacts of central banks’ tightening are still expected to weigh on economic growth and earnings outlook in the back half of the year.
  • Despite declining goods inflation, services inflation remains sticky on the back of higher wages, keeping the U.S. Federal Reserve and other central banks hawkish.
  • While uncertainty remains, optimism surrounding China reopening and resilient growth in Europe, supported by declining energy costs, could help buoy the global economy.
  • Key risks to global markets include central bank missteps, resilient inflation, steeper growth decline resulting in a hard landing, and geopolitical tensions.

Portfolio Positioning

As of 28 February 2023

  • We remain underweight equities and bonds in favor of cash. Equity valuations remain extended in the face of tightening liquidity and slowing growth. Bond yields are likely to remain volatile amid mixed economic data and central bank policy shifts, while cash offers attractive yields and stability.
  • Within equities, we are overweight areas with more attractive valuation support such as small/mid-caps, global ex-U.S. and emerging markets. We also maintain an overweight to core equities, with less extreme interest rate sensitivity and cyclicality.
  • Within fixed income, we remain overweight high yield, floating rate loans and emerging market bonds, where yields still offer reasonable compensation for risks, despite persistent market volatility.

Market Themes

As of 28 February 2023

Too Hot to Handle

Recent good news on consumer spending, sentiment and employment has been bad news for the U.S. Fed as they are not seeing evidence that aggressive rate hikes are having the intended impacts in slowing growth and reining in inflation. Markets had started the year positively on signs of peaking central bank tightening, however, the positive sentiment quickly faded as expectations for the path of future rates hikes jumped in response to the hotter data. Over the course of February, the futures market went from projecting the Fed Funds Rate to peak at 4.90% in June, to a projected peak of 5.41% in October. Having already raised rates by 450 basis points over the past year, the Fed is hopeful that the lagged effects will help them reach their inflation target of close to 2%, but if the economic data keeps coming in strong, the Fed may find it too hot to handle and need to step up the tightening. The months ahead are likely to be volatile as every bit of data will be scrutinized by investors hoping for just enough bad economic data to please Fed officials, yet not bad enough to signal a hard landing is imminent.

Fed Funds Rate Expectations Have Adjusted Higher

As of 28 February 2023

Fed Funds Rate Expectations Have Adjusted Higher graph

Past performance is not a reliable indicator of future performance.
Source: Bloomberg L.P.
Figures shown in USD.

Last One Standing

Bank of Japan (BoJ) Governor Kuroda is set to step down in early April after a decade in office with markets speculating that ultra-easy monetary policies he oversaw may be ending. The bank had already surprised markets when it eased yield curve controls at the end of last year allowing rates to rise more. With inflation running near 4.3%, a 40-year high, the BoJ has been the last major central bank standing firm with ultra-easy policy while almost all others pivoted to aggressive rate hikes to fend off high inflation. With his expected replacement, Kazuo Ueda, coming into office amid high inflation it is likely he will begin to take further steps to unwind ultra-easy policy. While stocks and bonds have broadly declined in the face of higher inflation and rates, Japanese markets may benefit as assets are repatriated back home, where they are now able to earn higher yields. For investors outside of Japan, a stronger yensupported by higher yields could provide a further boost to Japanese market returns. Although inflation has not been a friend to investors elsewhere, the Japanese market may be one area where investors welcome it.

Japan Seeing Decades-High Inflation

40 Years Ended 31 January 2023

Japan Seeing Decades-High Inflation graph

Past performance is not a reliable indicator of future performance.
Source: Bloomberg L.P.
Figures shown in USD.

Regional Backdrop

As of 28 February 2023

  Views Positives Negatives
United States U
  • Corporate and consumer balance sheets remain strong
  • Labor market has been extremely resilient
  • Services sector remains remarkably strong
  • Recession risk remains elevated
  • Inflation has proven more persistent than expected
  • Labor supply remains scarce
Canada N
  • China re-opening providing boost for commodity prices
  • Monetary tightening may have peaked
  • Labor market has been resilient
  • Recession risk remains elevated
  • Housing market continues to weaken rapidly
  • Consumer savings balances are fading sharply
Europe U
  • Unusually warm winter has driven energy costs lower
  • Fiscal spending is rising
  • Equity valuations remain attractive, despite recent rally
  • Inflation remains elevated, particularly core inflation
  • Monetary policy remains restrictive
  • Heightened geopolitical uncertainty due to the war in Ukraine
United Kingdom N
  • Energy cap benefitting household finances
  • Inflation expectations have reverted to normal
  • UK labor market remains resilient
  • Bank of England may be forced to hike more than expected
  • Fiscal consolidation may weigh further on demand in 2023
  • Recession and house price declines in 2023 appear likely
Japan O
  • Equity valuations remain very attractive
  • Gradual monetary policy normalization
  • Lower commodity prices and a stronger Japanese yen are lowering the inflation impulse
  • Expectations in earnings are prone for disappointment
  • Accelerating wage growth is making a gradual normalization off monetary policy difficult
  • Stronger Japanese yen may weigh on the export sector
Australia N
  • China re-opening has boosted earnings expectations
  • Domestic bonds offering attractive yields
  • Economy remains broadly resilient
  • Consumer spending is at risk with mortgage rates being reset
  • Latest earning results highlight concerns on margins going forward
  • Reserve Bank of Australia remains hawkish
Emerging Markets O
  • China re-opening has proven to be faster than expected
  • Equity valuations are attractive relative to the U.S.
  • Earnings growth expectations are improving
  • Given the strength of the re-opening thus far, Chinese policy may become less supportive
  • 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).

Asset Allocation Committee Positioning

As of 28 February 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 arerepresented as pairwise decisions as part of our tactical asset allocation framework.

Portfolio Implementation

As of 28 February 2023

Tactical Allocation Weights: Equity
Tactical Allocation Weights: Fixed Income

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 2023 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.


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