The Baltimore-based asset manager believes that the US economy continues to show resilience in the face of higher interest rates, but that growth across many parts of the world is showing signs of weakness.
The US appears to be the outlier, and Thomas Poullaouec, head of multi-asset solutions Apac at T. Rowe Price (TRP) noted that falling inflation while growth remains steady means that the US Federal Reserve is justified in ending its phase of interest rate hikes.
“Equity valuations beyond [the] narrow leadership [look] attractive,” he said.
TRP also reduced its underweight to European equities to rebalance its active risk and on early signs of sentiment bottoming.
However, Europe looks to have slipped into recession, with the UK not far behind and Chinese growth is modest, according to Poullaouec. “The emphasis on fighting inflation is steadily being replaced by the need to stabilise declining growth, at least outside the US.”
For the rest-of-the-world, the US Fed’s policy has had far reaching impacts, as seen by the recent spike in longer-term yields globally, he noted. “The move higher in yields has also sent the US dollar even higher, proving especially painful for many emerging markets economies, their currencies and dollar-denominated bond markets.”
Indeed, emerging market local currency debt is facing the headwinds of resilient US dollar strength and higher commodity prices.
Within global fixed income, TRP remains overweight cash relative to bonds. “Cash has provided attractive yields and liquidity to take advantage of recent market dislocations,” noted Poullaouec.
As a hedge against inflation remaining above central bank targets, TRP holds a “modest overweight to real assets-related equities”.
