T. Rowe Price’s Australia investment committee has adjusted its positioning across equities, bonds and cash, lifting equity exposure while trimming cash and maintaining an underweight in global bonds.
The group reported a slight overweight to equities, reflecting the support of fiscal stimulus and accommodative central bank policies for global growth despite elevated valuations and lingering inflation risks.
It noted that the “goldilocks argument should win in the short term as reasonable earnings expectations provide another catalyst until year-end”.
At the same time, it kept an underweight in global bonds, citing inflation pressures and the funding requirements associated with ongoing US fiscal deficits, which “could keep upward pressure on rates, particularly at the long end”.
For Australia, the committee said there were “better opportunities to benefit from lower yields on the long end of the curve given the starting steep yield curve”.
Credit spreads were described as historically tight but still supported by “strong fundamentals”.
The committee also moved to an underweight in cash, despite the Reserve Bank’s more hawkish tone, arguing that monetary policy “is still likely to ease in the coming 6 months, a headwind for cash returns”.
Across regions, the group maintained an underweight to Australian equities, stating the market “is not cheap while forecast earnings growth is weak relative to the rest of the world”. It said this was unlikely to shift soon after weak forward guidance during the Q2 results season.
US equities were considered supported by strong fundamentals despite elevated valuations, while Europe could see near-term upside from “increased fiscal spending, accommodative monetary policy, and reasonable valuations”, though a lack of innovation leaders weighed on the medium-term view.
Japan’s improved economic outlook and waning political and trade concerns were also highlighted, alongside optimism for emerging markets boosted by easing trade tensions and rising fiscal stimulus.
The firm described the broader outlook for risk assets as balanced, pointing to the tension between high valuations, sticky inflation and policy uncertainty, and ongoing support from fiscal measures and robust earnings.
It warned that key risks included “sticky inflation, potential policy missteps by central banks, a weakening labor market, lingering trade tensions and ongoing geopolitical tensions”.
Currency views were largely unchanged, though conviction in the Australian dollar was lowered as the US dollar “is getting bid”, even as narrowing interest-rate differentials and commodity prices were viewed as potential upside catalysts.
The committee’s assessment followed volatility in US markets, where valuations, AI-related spending, debt-financing pressures and a weakening labour market have contributed to recent jitters.
The firm noted that while earnings growth remains robust and M&A activity is rising, “AI spending… has been the primary driver of economic growth, earnings, and market performance”.
T.Rowe added that uncertainty within the Federal Reserve had increased after the latest rate cut, with policymakers split and “little clarity in the direction of the economy”, prompting markets to pull back expectations of a December move.
In Australia, T. Rowe Price said economic momentum is slowing as labour and inflation readings complicate the Reserve Bank’s policy decisions. The bank is “maintaining a relatively hawkish policy stance” for now.
