There’s a time when investments run their course and the prudent transfer is to money out. For international asset managers who’ve ridden double-digit positive aspects in equities for 3 straight years, that point is just not now.
“Our expectation of solid growth and easier monetary and fiscal policies supports a risk-on tilt in our multi-asset portfolios. We remain overweight stocks and credit,” mentioned Sylvia Sheng, international multi-asset strategist at JPMorgan Asset Administration.
“We are playing the powerful trends in place and are bullish through the end of next year,” mentioned David Bianco, Americas chief funding officer at DWS. “For now we are not contrarians.”
“Start the year with sufficient exposure, even over-exposure to equities, predominantly in emerging market equities,” mentioned Nannette Hechler-Fayd’herbe, EMEA chief funding officer at Lombard Odier. “We don’t expect a recession in 2026 to unfold.”
Greater than three-quarters of the allocators have been positioning portfolios for a risk-on atmosphere via 2026. The thrust of the guess is that resilient international development, additional developments in synthetic intelligence, accommodative financial coverage and financial stimulus will ship outsize returns in all trend of world fairness markets.
The decision is just not with out dangers, together with merely its pervasiveness among the many respondents, together with their general excessive diploma of assuredness. The view among the many institutional traders additionally aligns with that of sell-side strategists across the globe.
Ought to the bullishness play out as anticipated, it might ship a shocking fourth straight 12 months of bumper returns for the MSCI All-Nation World Index. That may prolong a run that’s added $42 trillion in market capitalization because the finish of 2022 — probably the most worth created for fairness traders in historical past.
That’s to not say the optimism is with out advantage. The bogus intelligence commerce has added trillions in market worth to dozens of corporations plying the business, however simply three years after ChatGPT broke into the general public consciousness, AI stays within the early section of improvement.
No Tech Panic
The buy-side managers largely rejected the concept the expertise has blown a bubble in fairness markets. Whereas many acknowledged some pockets of froth in unprofitable tech names, 85% of managers mentioned valuations among the many Magnificent Seven and different AI heavyweights are usually not overly inflated. Fundamentals again the commerce, they mentioned, which marks the start of a brand new industrial cycle.
“You can’t call it a bubble when you’re seeing tech companies deliver a massive earnings beat. In fact, earnings from the sector have outstripped all other US stocks,” mentioned Anwiti Bahuguna, international co-chief funding officer at Northern Belief Asset Administration.
As such, traders anticipate the US to stay the engine of the rally.
“American exceptionalism is far from dead,” mentioned Jose Rasco, chief funding officer at HSBC Americas. “As artificial intelligence continues to spread around the globe, the US will be a key participant.”
Most traders echoed the sentiment expressed by Helen Jewell, worldwide chief funding officer of basic equities at BlackRock, who advised additionally looking out outdoors the US for significant upside.
“The US is where the high-return high-growth companies are, so we have to be realistic about that. But those are already reflected in valuations, and there are probably more interesting opportunities outside the US,” she mentioned.
Worldwide Growth
Earnings matter above all else for fairness traders, and big bumps in authorities spending from Europe to Asia have stoked estimates for sturdy positive aspects in earnings.
“We have begun to see a meaningful broadening of earnings momentum, both across market capitalizations and across regions, including Japan, Taiwan, and South Korea,” mentioned Wellington Administration fairness strategist Andrew Heiskell. “Looking into 2026, we see clear potential for a revival of earnings growth in Europe and a wider range of emerging markets.”
India is likely one of the most compelling alternatives for 2026, in keeping with Goldman Sachs Asset Administration’s Alexandra Wilson-Elizondo, international co-head and co-chief funding officer of multi-asset options.
“We see real potential for India to become the Korea-like re-rating story of 2026, a market that transitions from tactical allocation to strategic core exposure in global portfolios,” she mentioned.
Nelson Yu, head of equities at AllianceBernstein, mentioned he sees enhancements outdoors of the US that can mandate allocations. He famous governance reform in Japan, capital self-discipline in Europe and recovering profitability in some rising markets.
Small Cap Optimism
On the sector degree, the traders are on the lookout for AI proxies, notably amongst clear power suppliers that may assist meet the expertise’s ravenous demand for energy. Smaller shares are additionally discovering favor.
“The earnings outlook has brightened for small-capitalization stocks, industrials and financials,” mentioned Stephen Dover, chief market strategist and head of Franklin Templeton Institute. “Small-cap stocks and industrials, which are typically more highly leveraged than the rest of the market, will see profitability rise as the Federal Reserve trims interest rates and debt servicing costs fall.”
Over at Santander Asset Administration, Francisco Simón sees earnings development of greater than 20% for US small caps after years of underperformance. Reflecting the optimism, the Russell 2000 Index of such equities just lately hit a file excessive.
In the meantime, the mixture of low valuations and robust fundamentals makes well being care one of the crucial compelling contrarian alternatives in a bullish cycle, a preponderance of managers mentioned.
“Health-care related sectors can surprise to the upside in the US markets,” mentioned Jim Caron, chief funding officer of cross-asset options at Morgan Stanley Funding Administration. “This is a mid-term election year and policy may at the margin support many companies. Valuations are still attractive and have a lot of catch up to do.”
Just about each allocator struck not less than a observe of warning about what lies forward. The highest fear amongst them was a rekindling of inflation within the US. If the Fed is compelled by rising costs to abruptly pause and even finish its easing cycle, the potential for turbulence is excessive.
“A scenario — which is not our base case — whereby US inflation rebounds in 2026 would constitute a double whammy for multi-asset funds as it would penalize both stocks and bonds. In this sense it would be much worse than an economic slowdown,” mentioned Amélie Derambure, senior multi-asset portfolio supervisor at Amundi SA.
“The way investors are headed for 2026, they need to have the Fed on their side,” she added.
Commerce Warning
One other fear is round President Donald Trump’s capriciousness, significantly in terms of commerce. Any flareup in his commerce spats that fuels inflation via heightened tariffs would weigh on threat property.
Oil and gasoline producers stay unloved by the group, although that would change if a serious geopolitical occasion upends provide strains. Whereas such an consequence would bolster these sectors, the general influence would doubtless be unfavorable for threat property, they mentioned.
“Any geopolitical situation that can affect the price of oil is what will have the largest impact on the financial markets. Clearly both the Middle East and the Ukraine/Russia situations can impact oil prices,” mentioned Scott Wren, senior international market strategist at Wells Fargo Funding Institute.
A number of respondents flagged European autos as a “no-go” space for 2026, citing intense aggressive stress from Chinese language carmakers, margin compression and structural challenges within the transition to electrical autos.
“Personally I don’t believe for a minute that there will be a rebound in the sector,” mentioned Isabelle de Gavoty at Allianz GI.
Outdoors of these worries, most asset managers merely consider that there’s little purpose to stress in regards to the upward momentum being interrupted — outdoors, after all, from the contrarian sign such near-uniform bullishness sends.
“Everyone seems to be risk-on at the moment, and that worries me a bit in the sense that the concentration of positions creates less tolerance for adverse surprises,” mentioned Amundi’s Derambure.
