Skip to main content

August 2020 / ASSET ALLOCATION VIEWPOINT

Global Asset Allocation: The View From The UK - August Insights

Discover the latest global market themes and the outlook for the world's major regions

MARKET INSIGHTS

As of July 31, 2020

Don’t Fight the FAANGs?1

Year-to-date growth stocks have outperformed value by over 30%, not only in the downturn given their defensive characteristics, but also during the recovery. While growth stocks have benefited from secular trends, as well as asset-light business models and less cyclical exposure, for more than a decade, the recent shutdowns have actually benefited many growth companies due to accelerated trends in areas such as online shopping, video streaming, and cloud computing. With S&P 500 earnings expected to be down close to 35% in the quarter, the FAANGs are expected to report an average growth of 20% in earnings. Although growth stock valuations appear stretched, fundamentals remain strong and many expect the current low growth and low rate environment to continue, which has historically favored growth stocks. While value stocks have been written off by the market, progress on a coronavirus vaccine or signs of a rebound in global growth could have them poised for a much overdue rally—but it is unlikely to be the start of a new value cycle.

Not So Fast on That “V”

Global growth came in at record‑low levels in the second quarter, with output in the U.S. contracting by nearly 33% and the eurozone down over 40% (on an annualised basis). While the headline gross domestic product numbers were not unexpected, hopes in the U.S. that the rapid recovery that we saw in May and June would continue through the rest of the year have been called into question by the recent mixed jobs data. The two consecutive weeks of increasing initial jobless claims in July challenged the labour market recovery, although the most recent week’s initial jobless claims data showed a bit of a reversal. If this “muddle through” environment continues and the federal government reduces additional support for unemployed Americans—which has kept many Americans afloat during the crisis—the equity market’s hopes for a V-shaped recovery in the back half of the year may be dashed.

Dollar Can’t Buy EM Relief

In July, the U.S. dollar (USD) and U.S. Treasury yields both fell to multiyear lows, pressured by a resurgence in coronavirus cases and the Fed’s pledge to keep monetary policy loose. Normally, this backdrop would be supportive for higher‑yielding emerging markets (EM) amid a low yield environment and provide a boost to their currencies. However, continued economic impacts of the current crisis and limited capacity for fiscal and monetary stimulus, except for China, have weighed on sentiment despite the slump in the USD. This has been evident in the divergence in EM regional currency performance during the virus-related sell-off and recovery. Idiosyncratic issues including financial instability continue to hinder some Latin American countries, leading to significant underperformance versus their more stable, Asian EM counterparts. While a lower USD removes a significant headwind for EM assets, bigger risks abound for broader EM as they continue to weather the crisis.

 

For a region-by-region overview, download the PDF.

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, nor is it intended to serve as the primary basis for an investment decision. 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 noted on the material 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.

Previous Article

August 2020 / INVESTMENT INSIGHTS

Global High Yield Bonds Continue to Offer Value
Next Article

August 2020 / VIDEO

Global High Income Bond: How we work
202008‑1304644

July 2020 / ASSET ALLOCATION VIEWPOINT

Global Asset Allocation: The View From The...

Global Asset Allocation: The View From The UK - July Insights

Global Asset Allocation: The View From The...

Discover the latest global market themes and the outlook for the world's major regions

By Yoram Lustig

Yoram Lustig Head of Multi-Asset Solutions, EMEA

June 2020 / INVESTMENT INSIGHTS

Global Asset Allocation: The View From The...

Global Asset Allocation: The View From The UK - June Insights

Global Asset Allocation: The View From The...

Discover the latest global market themes and the outlook for the world's major regions

By Yoram Lustig

Yoram Lustig Head of Multi-Asset Solutions, EMEA

You are now leaving the T. Rowe Price website

T. Rowe Price is not responsible for the content of third party websites, including any performance data contained within them. Past performance cannot guarantee future results.