T. Rowe lifts Australian equities outlook, flags risks

Binaya Dahal

Journalist, Financial Newswire

20 March 2026

T. Rowe Price has upgraded its outlook on Australian equities from neutral to a small overweight but warned geopolitical shocks, AI disruption, and persistent inflation could test the country’s economic resilience.

In its latest global asset allocation review, the $1.7 trillion US asset manager said Australian equities are regaining favour as earnings improve on the back of robust credit growth and elevated commodity prices.

It added the local economy remains “above potential”, with employment holding firm even as inflation pressures push the Reserve Bank of Australia towards a more hawkish stance. Valuations for Australian equities are also “less stretched than before,” the report noted.

However, the firm warned global “drumbeat” of negative headlines could unsettle markets currently buoyed by expectations of strong earnings growth.

“The latest being the US and Israeli attack on Iran which has led to a spike in energy prices, with no clear end in sight,” the report stated.

“This comes on the heels of rising concerns over AI, including the disruptive impacts on some business models and the magnitude and ultimate payoff of AI capex spending.”

Globally, T Rowe Price noted a shift in investor appetite toward “asset-heavy” sectors including natural resources, energy, utilities and defence.

It believes investors have become increasingly concerned over the prospects for AI displacing certain business models, including software development and asset management companies.

“While asset-lite companies, many of which are tech-related, have been the darlings for years, markets may be tuning into a new genre,” the report said.

For domestic bonds, the firm closed its overweight position on longer-duration Treasuries, citing the risk that monetary policy stays tighter for longer.

It, however, remains underweight on non-domestic bonds, fearing that US fiscal deficits could keep upward pressure on rates.

The manager said its position in cash was similar to non-domestic bond, calling it an asset that offers liquidity to take advantage of opportunities in other asset classes.