Schroders' Asia-Pacific Head of Multi-Asset Investments, Keiko Kondo, has unveiled the firm's top 10 investment market predictions for 2026. The outlook favors US equities overall but warns of potential AI bubble risks amid a rate-cutting environment. In non-US markets, Asian tech stocks are highlighted for their stronger-than-expected earnings growth and reasonable valuations. European banking and industrial sectors are expected to benefit from defense spending and related consumption. Additionally, gold is favored while the US dollar is viewed cautiously, as central banks globally increase gold reserves amid a gradual de-dollarization trend.
Kondo’s key predictions include: 1. **US Equities**: While stocks remain attractive in a no-recession rate-cut scenario, investors should monitor AI-driven speculation and rising losses among unprofitable firms. Diversified portfolios are recommended over concentrated bets. 2. **Asian Tech Stocks**: These are seen as offering both earnings growth and valuation upside, with fundamentals not yet overstretched. 3. **European Banks & Industrials**: Cyclical and value sectors, particularly banks and industrials, may gain from regional defense spending and economic shifts. 4. **Convertible Bonds**: Combining equity upside (80%) with downside protection (60%), they balance returns and risk mitigation. 5. **Russell 2000 Index**: Small- and mid-cap US stocks could outperform in a rate-cut cycle, though high-yield bond shorts may hedge risks. 6. **US Dollar Weakness**: Long a safe-haven asset, the dollar faces diversification pressures as investors reduce overexposure to US assets. 7. **Emerging Market Local Currency Bonds**: Improved fiscal health and higher yields than developed markets make these appealing, especially with potential rate cuts. 8. **Gold**: Despite retreating from near $4,000/oz, gold remains favored by central banks and Asian investors seeking dollar alternatives. 9. **Alternative Energy**: Structural AI-driven power demand and climate policies may revive this undervalued sector. 10. **Private Assets**: Less volatile than public markets, they offer resilient returns aligned with strong fundamentals.
Kondo notes that 2025 saw significant turbulence, from Trump 2.0 policies to Asia’s recovery and AI enthusiasm. She stresses diversified, active strategies amid rising volatility in 2026, with Asia outperforming the US and AI broadening beyond select stocks. The US economy shows resilience with steady Q3 growth, rebounding consumption, and a stable labor market, allowing the Fed room to cut rates without near-term recession risks.
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