State of play for investments in 2026

IN 2026, the sporting world will welcome a host of landmark global events including the Fifa World Cup and Tour de France in the summer, followed by the Commonwealth Games and Winter Olympics.

For investors, participating in the capital markets will not be a spectator sport. Instead, preparedness, strategy and agility will be the state of play for the year ahead.

A few pivotal questions will shape the playbook for the 2026 global investment outlook.

US economy: US Fed action

What will the US Federal Reserve do in 2026 to balance its dual mandate? The Fed’s new Chair and the consequent policy decisions to balance its dual mandate of jobs and price stability will play a key role.

In 2025, the Fed has reduced interest rates twice so far from 4.25-4.50 per cent to 3.75-4.00 per cent to support the slowing US labour market. While still low by historical standards, the US unemployment rate has drifted higher to 4.3 per cent, from 50-year lows of 3.4 per cent in 2023.

The pace and quantum of the easing cycle will depend on the incoming Fed Chair, economic data about the labour market, as well as first- and second-order tariff impact on inflation. The “insurance cuts” to cushion the slowing labour market will support risk assets like equities and gold while keeping the USD weak and 10-year US Treasury (UST) yields in a 4-5 per cent range. Renewed easing in 2026 may coincide with the end of Powell’s term in May and the direction set by the new Fed Chair next summer.

Sovereign America vs Corporate America

A rate-easing cycle by the Fed is generally conducive for global risk assets for two reasons. Besides supporting financial conditions for the US, easing cycles allows other central banks to adopt a dovish monetary policy to support growth. If recession is averted and the tariff impact on inflation and growth appear more muted than feared, risk assets could continue to rally.

After USD weakness this year, the currency may experience a slower pace of decline in 1H26, especially if growth outperforms. Further weakness may continue on concerns of long-term fiscal sustainability, growth concerns, any compromise to Fed independence and the relative performance of other nations.

Looking ahead, the UST market remains sensitive to shifts in macro signals, fiscal dynamics and elevated issuance needs, but growth or inflation surprises could support duration in portfolios. We expect 10Y UST yields to stay range bound, remaining neutral on duration in bond portfolios.

US companies that are globally diversified are supported by structural tailwinds of lower rates, weaker USD and a reprieve in US-China trade tensions. However, elevated consensus earnings growth for US-listed companies of about 14 per cent in 2026-2027 may be a challenge to beat.

AI plays: early innings or mature game?

Investors are concerned that euphoric expectations around artificial intelligence (AI) investment could be unrealistic, especially as valuations continue to climb for large tech firms. A healthy correction in AI-related stocks may occur due to elevated earnings expectations, and market concentration of “Magnificent 7” stocks accounting for 30 per cent of market capitalisation.

As tech giants “pay to play” with annual capital expenditure (capex) bills exceeding US$100 billion to compete against new entrants, investors are concerned that firms are meeting these funding needs beyond free cash flow through vendor or circular financing, as well as bond issuance and private credit arrangements.

Hence, investors will need to discern leaders from the laggards in the ecosystem by examining both their earnings potential and credit fundamentals. Within investment portfolios, consider managing overlapping AI exposures that may extend beyond US tech stocks to index ETFs, multi-asset and thematic funds as well as bond funds.

Still, as AI technology achieves ubiquity in sector/domain-specific use cases including services (finance, legal, compliance, content and marketing), multi-agent AI systems will proliferate given time to become more scalable and complex. Our conviction in AI as a structural theme can also be expressed by broadening exposure beyond the tech sector to less well-owned sectors such as utilities and materials, which benefit from energy transition and power demand, as well as AI players in China and Asia ex-Japan.

Game on for Asia

Asia’s future growth will be driven by its relentless pursuit of technology and sustainability leadership, amid geo-economic fragmentation and climate change. The region is transforming from the world’s factory floor into hubs for game-changing technology, backed by a dominant semiconductor supply chain, surging AI demand, proactive government support and a deep reservoir of scientific talent.

In our tactical asset allocation, we favour Asia ex-Japan equities on the back of a favourable macro backdrop, lower rates and supportive local fiscal and monetary policies. Exports could rebound given greater clarity over trade and greater investor appreciation for Asia’s AI ecosystem in the region.

With Hong Kong and China equities forming the largest weight (>35 per cent) on the MSCI Asia ex-Japan index, the outlook for China is a primary driver of performance of the region. China’s equity rally will be supported by valuations and liquidity dynamics, where household savings remain high, and equity markets present a viable investment alternative from lower-yielding deposits and real estate.

As the US-China conflict has entered a temporary truce after the recent summit between President Xi Jinping and President Donald Trump, China’s policymakers will likely focus on innovation and sustainability of strategically important sectors to maintain steady economic growth.

Playbook for portfolio resilience

Despite the favourable growth picture and investment outlook in our base case, the uncertain macro outcomes, AI- and liquidity-driven exuberance expose portfolios to vulnerabilities from periodic market upheaval and slower-moving structural shifts.

The structural anchor to building robust, resilient portfolios for long-term wealth management is best achieved through strategic asset allocation that is optimised to focus on diversification, incorporating defensive assets, disciplined rebalancing and a long-term investing mindset.

A “whole portfolio approach” allows us to incorporate expected return and risk factors to calibrate real returns for multi-asset portfolios, sourced across the public and private markets continuum. This enables access to high-quality cashflows and yield enhancements, while incorporating gold and alternatives as effective diversifiers across structural changes in macro and market drivers.

Over the next five years, we expect structural supertrends to intertwine and influence strategic decisions on how to allocate capital, manage risks within portfolios and identify potential growth opportunities. They include the new world order, whole portfolio resilience, capturing structural AI themes, tapping Asia’s advantage and the changing dynamics of how people live, play and love, amid demographics shifts.

Staying in the game, with a disciplined strategic and tactical strategy, will define the state of play.

The writer is global chief investment officer, Bank of Singapore