The investment playbook for 2026 looks set to hinge on two questions: can corporate earnings broaden beyond a narrow set of winners, and can portfolios withstand renewed rate volatility as markets reprice central bank leadership and fiscal risk. Across equities, fixed income, commodities and currencies, the rapid build-out of AI and cloud infrastructure is becoming a cross-asset stress test, shifting investor focus from pure growth narratives to balance sheets, free cash flow and funding costs.
Aadil Ebrahim, group head of equities and portfolio manager (Singapore) at boutique financial services group Klay Group says the US market enters 2026 priced for delivery after a powerful run. “Leadership has been earnings-driven, but high forward multiples present both opportunity and risk,” he says. “2025’s rally masked underlying dispersion: while AI and adjacent sectors lifted the index, cyclical and value areas lagged.”
That dispersion matters because the easiest phase of the rally may already be behind investors. Ebrahim says, “For 2026, further gains will require either multiple expansion (difficult in a higher-for-longer rate scenario) or real earnings acceleration, particularly in lagging sectors.” He adds that politics could quickly change market tone. “US midterms add policy risk, especially around tax, trade, and deregulation, with potential for abrupt sentiment shifts,” he says.
Equities: Asia catch-up potential, Europe needs operational turnarounds
Beyond the US, Ebrahim sees a more favourable structural set-up in Asia ex-Japan after years of underperformance. “After years of underperformance, Asia ex-Japan looks structurally positioned for a breakout, with earnings growth matching or outpacing the US but at much lower valuations,” he says. For global allocators, that is a valuation and growth combination that has been scarce in recent years.
China remains the swing factor for regional sentiment. Ebrahim says, “China, the wild card, shows accelerating AI and cloud growth, if regulatory overhangs abate and double-digit tech earnings materialise, a multi-year catch-up is possible.” At the same time, he flags a key risk around India’s positioning in global portfolios. “India’s foreign flows remain at risk from FX volatility,” he says, a reminder that equity upside can be constrained if currency moves unsettle overseas investors.
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Europe screens cheaper than the US, but Ebrahim is cautious on what drives upside without a profit recovery. “In 2025, Europe undershot earnings forecasts massively,” he says. “At just 16x, valuations are undemanding, but absent a sharp earnings rebound, upside is capped.” He adds that any support from currency moves or valuation re-rating has limits. “FX and valuation-driven support is unsustainable without operational turnarounds,” he says, while Europe’s sector mix also leaves it less exposed to the strongest global growth themes. “Sector composition (less tech, more regulated industries) continues to limit participation in global growth themes,” he says.
Within equities, Ebrahim argues that the market’s tolerance for weak fundamentals is fading as funding costs stay elevated. “Massive AI-driven capital investment is now spilling from equities into credit markets, market discipline is tightening,” he says. “Only robust, free cash-flow generators should command premium multiples as risk appetite rotates away from ‘growth at any price’.” He adds that investors can still find steadier growth areas even if macro uncertainty persists. “Healthcare and industrials offer defensive growth; consumer staples continue to provide resilience amid economic uncertainty,” he says.
Fixed income: Treasuries as ballast, credit watches supply
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In fixed income, Akshat Kumar, group head, fixed income (Mumbai), expects government bonds to retain an important role in portfolio construction after 2025’s performance. “After a strong 2025, Treasuries remain a core ballast for portfolios, with correlations reverting toward negative vis-à-vis equities,” he says.
But he also warns that 2026 could be a turning point for rate volatility if leadership changes shift expectations around the policy reaction function. “The market braces for a pivotal year: the appointment of a potentially dovish Fed chair (post-election) could trigger renewed volatility in yields and yield curve steepening,” Kumar says.
Emerging market debt delivered strong returns, but Kumar expects dispersion to rise as spreads sit near tight levels. “Standout returns are likely to moderate; spreads are at or near historic tights, and idiosyncratic risks are rising,” he says. He adds, “Asia remains relatively tight versus LATAM/EMEA, country and issuer selection are paramount as absolute returns normalize.”
In credit, Kumar says investors have been rewarded for avoiding extremes on the curve. “The ‘belly’ of the curve (intermediate duration) has been the sweet spot, balancing roll-down opportunities and volatility risk,” he says. Supply dynamics are the next variable to watch. “Credit supply/demand remains favorable for now, but watch for AI-linked overissuance to crowd out weaker borrowers and widen sectoral spreads,” he says.
Gold, critical minerals and FX: Diversification and fragmentation
For commodities, Uday Vikram, co-CIO (Singapore), says gold’s role as a hedge remains relevant in a world of fiscal strain and geopolitical uncertainty. “As a safe-haven and inflationary hedge, gold’s double-digit move in 2025 reflects fears about fiat debasement and protracted US deficit spending,” he says. “Expect continued tailwinds as asset allocators seek diversification. Gold could do well both in elevated inflationary environment and recessionary environments.”
On critical minerals, Vikram points to long-run policy-driven demand rather than short-term cycles. “Geopolitical fragmentation is driving a relentless push toward supply chain resilience,” he says, “especially in rare earths, uranium, copper.” He adds, “US vulnerability to Chinese supply (up to 100% in some inputs) underpins long-term price support and investment flows,” and argues that strategic minerals will remain central to industrial planning.
Currency markets could add another layer of volatility to global returns. Vaibhav Loomba, group head of FX and rates (Dubai), says, “The 8.5% dollar drop in 2025 signals regime change, but further depreciation faces headwinds if Fed policy surprises hawkishly or if carry trades regain favor.” He adds that leadership perception matters as much as economic data. “The change of Fed Chair in Q2 (especially if accelerated politically) could produce violent swings if market faith in central bank independence erodes,” Loomba says.
Ebrahim returns to the dominant cross-asset theme for 2026: the funding and profitability of AI expansion. “AI/Cloud Infrastructure: This remains the most watched and hotly debated cross-asset theme for 2026,” he says. “As hyperscalers and cloud firms ramp up capex, the resulting liquidity surge supports credit markets in the near term but could sow the seeds of future distress, especially among over-leveraged, marginal players.” His conclusion is to focus on quality. “Play the space through high-quality, free cash flow-positive names and avoid speculative debt-fuelled expansion,” he says.
