Fidelity International's Global Head of Multi-Asset Investments, Matthew Quaife, has indicated a generally optimistic outlook for equities in the second half of the year, with a particular focus on Japan and select emerging markets. He highlighted that capital expenditure in artificial intelligence remains a primary driver for global markets, spurring related investments in areas like energy shortages and grid upgrades. These trends are presenting attractive entry points for investors, especially given the market's previous concentration on a limited number of high-valuation technology stocks.
Quaife also noted that commodities linked to energy can serve as effective tools for diversifying geopolitical risk. Regarding potential energy supply shocks from a closure of the Strait of Hormuz, the firm's base case scenario anticipates a gradual resolution of conflicts. However, energy markets are expected to maintain a geopolitical risk premium, with parts of Asia likely to be most significantly affected, and Europe also relatively vulnerable. While the United States is expected to be more resilient to such energy shocks, factoring in these dynamics suggests the Federal Reserve will have very limited room for interest rate cuts this year.
Within Asia, the surge in AI capital expenditure is benefiting regional chip and technology companies, a theme expected to dominate the investment narrative in the latter half of 2026. Richer North Asian economies, such as mainland China, South Korea, and Taiwan Province of China, are seen as relatively more resilient to conflict impacts. Conversely, South and Southeast Asian regions, including India, Thailand, and the Philippines, are viewed as more vulnerable.
Quaife mentioned observing increasingly attractive valuations for Chinese hardware companies. These firms are gaining importance within the physical AI supply chain, benefiting from rising research and development investments and government-driven initiatives for technological self-reliance and supply chain localization.
Regarding Japan, Quaife anticipates the government will introduce additional fiscal support, potentially including supplementary budgets. He also expects the Bank of Japan to proceed cautiously with interest rate normalization, aiming to stabilize inflation expectations without stifling growth. Medium-sized enterprises in Japan are poised to benefit from a domestic demand recovery.
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