In its latest Global Asset Allocation: The View from Australia report, the fund manager cited constructive earnings expectations but highlighted that trade tensions and extended market valuations continue to temper optimism.
T. Rowe Price moved its equity allocation to underweight back in May, at the time citing potential headwinds to growth from tariff and trade policies.
The proceeds from de-risking in equities were added to cash and alternatives with the aim to be “more defensive in an increased volatile environment”, the fund manager said at the time.
This week, however, it has pivoted – increasing its allocation to risk assets while repositioning away from cash.
“We have shifted to a neutral stance in equities as the outlook balances lower recession risks, fiscal support and a generally constructive earnings backdrop against extended valuations and ongoing trade tensions,” T. Rowe Price said.
Additionally, the fund manager disclosed it has now adopted a neutral position between growth and value sectors, reflecting a balanced perspective on the beneficiaries of fiscal incentives and deregulation, alongside rich valuations in both growth and value relative to their historical norms.
“Within regions, we continue to find more attractive opportunities outside the US, driven by more compelling valuations and improving sentiment, which are supported by fiscal spending tailwinds and accommodative central bank policies,” it said.
While it maintained an overweight to fixed income through credit sectors, citing its income advantage in a potentially sideways market, T. Rowe said it is underweight cash as the RBA’s easing bias proves a headwind for cash returns.
Detailing its regional equities exposures, the fund manager said it’s neutral Australia on the back of expectations earnings could improve, helped by policy easing and fiscal support.
“Australian economic momentum seems to be peaking after months of surprising resilience. Monetary easing and fiscal support should provide a buffer,” it said.
Regarding the US, T. Rowe Price remains underweight, describing US equities as facing a “mixed environment”.
“Valuations and earnings expectations are elevated. However, falling policy uncertainty, fiscal stimulus and AI progress have buoyed sentiment,” it added.
Regions it is particularly bullish on include Europe and emerging markets, with the fund manager citing increased fiscal spending and reasonable valuations as particularly supportive for European equities.
Meanwhile, the fund manager remains neutral on Australian bonds as local duration remains “slightly more attractive than international ones due to carry and expectations of the RBA easing path”.
The fund manager first announced a reduction in its exposure to US equities and mega-cap tech stocks in early May due to changing market dynamics and uncertainties.
At the time, the investment firm said despite the recent pause in tariffs acting as a glimmer of hope for global markets, “the future remains uncertain as companies are withdrawing guidance due to an unclear outlook”.
T. Rowe wasn’t the only or the first fund to do so, with BlackRock announcing in early April it had reduced its US equity exposure to neutral, only to reverse course and shift back to an overweight position just a week later.
