Outlook 2026: Blowing Bubbles?
We expect risky assets to outperform in 2026 amid an AI boom, easing fiscal and monetary policies and abating trade tensions. Gains are expected to be accompanied by greater dispersion, resulting in our preference to diversify across a wider range of asset classes.
We remain Overweight on global equities, driven by expectations of strong earnings growth that will dominate elevated valuations. Diversification is key to managing risks, and we see opportunities across sectors and regions.
We expect equities to push higher in 2026, led by the US and Asia ex-Japan, supported by strong earnings growth, Fed rate cuts, and a weak USD. To manage risks, we recommend regional diversification, with Overweights in US technology, healthcare, and utilities sectors, as well as Asia ex-Japan equities, particularly in India and China. Emerging Market bonds, both USD and local currency, are also attractive for their yields and diversification benefits.
Gold remains a key diversifier amid uncertainties, with positive drivers such as central bank demand and a weak USD. The JPY and CNH are also attractive currency diversifiers. We recommend adding alternative strategies to portfolios to reduce volatility and boost returns.
Opportunistic ideas: Within equities, we see opportunities to invest in global gold miners, US tech, pharma, and utilities; China non-financial high-dividend state-owned entities, Hang Seng Technology Index; Europe banks and Indian large & mid-cap equities. For bonds, consider US Treasury Inflation-Protected Securities (TIPS), short-duration high-yield bonds, Asia Investment Grade bonds and CLO.
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