T. Rowe Price stays underweight on Australia, overweight on US

Australian equities are less favoured in the second half of the year, T. Rowe Price said, given the dependency on energy imports and headwinds from the tightening monetary and fiscal policies.

The global asset manager will continue to be overweight on US equities given its advantage as a net energy exporter and its sizable exposure to AI-related companies.

T. Rowe Price also cautioned investors to not mistake the current resilience in the market for stability.

In its midyear market outlook, it noted while global markets have remained resilient in the first half of the year, the second half will likely be defined by a more fragmented and capital-intensive market environment, where supply security, policy support, and earnings durability will matter more.

Geopolitical fragmentation is raising the global risk premium, it said, which could increase inflation volatility, regional divergence and central bank policy dispersion, creating opportunities in rates and currencies.

T. Rowe Price head of global investment solutions Thomas Poullaouec said markets will continue to be driven by two competing inflationary forces of AI investment cycle with the potential for productivity improvement, and ongoing geopolitical tensions that have led to the energy shock.

"We stay focused on the level and durability of earnings growth. We've adopted a measured pro-risk stance," Poullaouec said.

He added the asset manager has kept overweight in emerging markets equities, where it sees diverse and compelling opportunities.

"Korea and Taiwan are poised to benefit from the ongoing AI build-out; higher energy prices should bode well for LatAm. Despite heightened geopolitical uncertainty, China could be relatively well positioned given its substantial energy reserve, diversified supply sources and resilient exports," Poullaouec said.

In fixed income, T. Rowe Price favours inflation-linked bonds over sovereign bonds as it sees markets underestimating the persistence of the current inflation shock.