October 2024 / 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 30 September 2024
- Economic data showing resilience as inflation nearing central banks’ targets, providing room for further easing.
- U.S. data holding up confirming soft landing as inflation nears target. European growth remains modest and bolstered by services, while manufacturing lags. Japanese growth rebounds from earlier in the year contraction supported by exports. Chinese policymakers take decisive action to support growth.
- Path of Fed cutting largely dependent on incoming data, while European Central Bank (ECB) looks to advance easing as inflation data provides support. Bank of Japan signals commitment to their divergent path of rates hikes. China cuts rates as part of broad stimulus measures to shore up the economy.
- Key risks to global markets include elevated geopolitical tensions, upcoming U.S. election, central bank policy missteps, and path of Chinese growth..
Portfolio Positioning
As of 30 September 2024
- We remain modestly overweight equities. While valuations are elevated, easing monetary policy, Chinese stimulus measures and potential broadening earnings growth should be favorable for equities.
- Within equities, we remain overweight value, globally, based on more attractive relative valuations and as global central bank easing should provide a backdrop for broader market participation.
- We maintain an overweight to cash relative to bonds. Cash yields remain attractive even as Fed embarks on easing as we expect a gradual path, while longer duration fixed income remains vulnerable to higher rates.
- Within fixed income, we continue to favor higher-yielding sectors including high yield bonds, floating rate loans, and emerging markets bonds. We shifted to neutral in U.S. Treasury Inflation-Protected Securities (TIPS) as upside risks to inflation have moderated.
Market Themes
As of 30 September 2024
Out of the Woods
The Chinese equity market is up nearly 30% since announcing a larger- than-expected stimulus package intended to help stave off further deterioration in growth and quell concerns about its troubled property sector. The PBOC and financial regulators’ coordinated efforts span across monetary and fiscal measures, including lower rates to support housing and loans to encourage share buybacks. Chinese equities had been a notable laggard this year, reflecting the struggles of policymakers to reverse slumping growth and falling well short of their 5% growth target. And with the potential threats of a shift in U.S. policy on the horizon, their export-heavy economy could find itself under more pressure. So, while the far-reaching measures are a step in the right direction and have been cheered by emerging markets investors, the structural headwinds facing China are vast, leaving many skeptical China is out of the woods just yet.
From Laggard to Leader1
As of 30 September 2024
Past performance is not a reliable indicator of future performance.
1 Source: MSCI. Emerging Markets ex-China and China are represented by the MSCI Emerging Markets ex-China Index and MSCI China Index, respectively. Please see Additional Disclosures for more information about this sourcing information.
Hold the Bubbly
Amongst major central banks, the ECB just saw their first read on inflation below their 2% target, down from an 11% peak in September 2022, freeing up the path to lowering rates further. This is welcomed news for other central banks as well, who are seeing similar progress toward their targets. Notably this progress is being achieved while global growth is holding up, with some areas showing surprising resilience. The forces that had driven inflation higher, including COVID-related supply shortages, excess savings supporting consumer spending, and unleashed pent-up demand driving services inflation have faded. By all measures, it is looking like central bankers may have pulled off the once unthinkable “soft landing” and should be celebrating. But unfortunately, the current backdrop of geopolitical tensions and the threat of policy shifts having an impact on growth and possibly reigniting inflation concerns has them holding off on popping the bubbly, for now.
Nearing Their Inflation Targets2
As of 30 September 2024
2 Source: Bloomberg Finance L.P.
Regional Backdrop
As of 30 September 2024
| Views | Positives | Negatives | |
|---|---|---|---|
| United States | N |
|
|
| Canada | N |
|
|
| Europe | U |
|
|
| United Kingdom | N |
|
|
| Japan | N |
|
|
| Australia | U |
|
|
| Emerging Markets | O |
|
|
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 30 September 2024
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 2024 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 representa- tions 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 and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice. 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.
Canada—Issued in Canada by T. Rowe Price (Canada), Inc. T. Rowe Price (Canada), Inc.’s investment management services are only available to Accredited Investors as defined under National Instrument 45-106. T. Rowe Price (Canada), Inc. enters into written delegation agreements with affiliates to provide investment management services.
© 2024 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.
October 2024 / MARKETS & ECONOMY
