The struggle for Europe to deploy the COVID-19 vaccine has led T. Rowe Price to move underweight on the region while simultaneously increasing its exposure to Japan.
In a multi-asset update, the team said it had moved to be overweight on Japan while moving to be underweight on Europe. Several European countries such as Italy and France paused the rollout of the Oxford/AstraZeneca vaccine after reports of negative side-effects but this had quickly led to a rebound in cases.
In light of this, T.Rowe Price had chosen to move underweight on the region.
“The vaccination effort is facing supply shortages, there are limited long-term catalysts for growth, limited scope for the European Central Bank to stimulate further, Brexit is likely to negatively impact trade,” the team said.
“However, monetary and fiscal policy remains accommodative, equity valuations remain attractive to the US and there is stronger long-term euro outlook.”
Instead, it was looking towards Japan which was being helped by the improving global trade outlook.
“Japan has an improving global trade outlook which is a key driver. Refocus on reform efforts remains an important catalyst for improving productivity and attracting foreign capital.
“Among developed markets, Japan is highly levered to global trade, which should likely continue to improve as global economies re-emerge over the coming months.
“Leading economic indicators are finally breaking through the expansion levels and the central bank should maintain its accommodative stance despite minor changes expected in March.”
This was the only asset allocation movements made by the multi-asset team during the month. It considered adding to its REIT exposure but decided to hold off for the time being as it felt global equities would benefit more from the re-opening than REITS would.
“We debated the opportunity to reduce our underweight to REITs relative to stocks. We decided to postpone that decision for later as we see global equities likely to be more explicit beneficiaries than REITs to the global re-opening theme. When possible, we would look to find exposure to inflation-sensitive assets such as inflation-linked bonds,” T. Rowe said.
