How T. Rowe Price Is Positioning Its Portfolio

How T. Rowe Price Is Positioning Its Portfolio
Global Asset Allocation Viewpoints and Investment Environment by T. Rowe Price Australia Investment Committee, as at 31 July 2021

Portfolio positioning

  • 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 fading policy support, higher rates, elevated inflation, and potential tax increases.
  • Within equities, we continue to favor value-oriented equities globally, U.S. small-caps, and emerging markets (EM) stocks as we expect cyclically exposed companies to continue to benefit from strong economic growth and global reopening.
  • Within fixed income, we continue to have a bias toward shorter duration and higher yielding sectors through overweights to high yield bonds and floating rate loans.

Market Perspective

  • Global economic growth remains strong but varied across regions, balancing progress on vaccination distribution with setbacks from growing delta variant cases.
  • While still supportive, global monetary policy is expected to continue a gradual trend toward tightening as central banks weigh moderating growth and increased coronavirus risk against more persistent inflation.
  • While global fiscal impulse continues to fade from crisis level highs, the European Union (EU) recovery fund, and potential U.S. infrastructure spending along with China’s efforts to stabilize growth could offset the pullback.
  • Longer-term interest rates could trend higher on the growth and inflation outlook, but upside may be limited as both factors move past peak levels. Short-term rates could begin to price in tighter central bank policy, leading to flatter yield curves.
  • Key risks to global markets include: the path forward for the coronavirus, elevated inflation, central bank missteps, higher taxes, a stricter regulatory environment, and increasing geopolitical concerns.


Balancing Act

At the same time that China has taken steps to stabilize its slowing economy with measures such as a surprise reserve requirement ratio cut and pledge to increase fiscal support, policymakers continued to advance social policies through increased regulation, the latest of which rattled markets. These new regulations are tied to specific priorities around ensuring data security, improving the quality and sustainability of economic growth, reducing the wealth gap, and protecting the environment. Some of the enforcement measures, like forcing the education companies to transition to not-for-profit, were seen as severe and prompted concerns that additional stringent measures for other industries may be forthcoming. Recent comments from government officials seem to indicate that this is unlikely, but were sufficient enough to worry investors. As China moves forward, stabilizing its economy while pursuing its social agenda could prove to be a tricky balancing act.