Q2 2026 Market Review

In this article

1. Inflation and Monetary Policy Remain Key Drivers
2. Equities
3. Fixed Income
4. Commodities
5. Currency
6. Summary
7. United Kingdom: Policy Transition and Economic Outlook
8. Macroeconomic Outlook
9. GDP growth:
10. Real GDP growth forecasts
11. Inflation expectations
12. Interest rate expectations:
13. Interest Rate Expectation (%)
14. Asset class views

The second quarter of 2026 marked a turning point for financial markets as investor focus gradually shifted away from geopolitical uncertainty and back towards economic fundamentals, corporate earnings and long-term investment themes. The announcement of a ceasefire framework between the United States and Iran helped reduce concerns over prolonged supply disruptions, leading to lower oil prices, improved market sentiment and a broad recovery across global asset classes.

Despite ongoing uncertainty around inflation and monetary policy, risk assets performed strongly during the quarter. Equity markets were supported by resilient corporate earnings and continued investment in artificial intelligence (AI), while fixed income markets benefited from improving credit conditions and a more stable outlook for interest rates.

Key market movements during the quarter included:

• Developed market equities gained 13.9%, supported by strong corporate earnings and continued enthusiasm for AI-related investments.
• Emerging market equities outperformed, returning 24.0%, driven by robust demand for semiconductors and technology exports from Taiwan and South Korea.
• The Bloomberg Global Aggregate Bond Index delivered a positive return of 0.9%, as tighter credit spreads offset the impact of elevated government bond yields.
• The Bloomberg Commodity Index declined 8.5%, reflecting lower energy prices and a correction in precious metals as geopolitical risks eased.

Artificial intelligence remained one of the most significant investment themes during the quarter. However, market attention increasingly shifted beyond AI applications towards the broader infrastructure required to support adoption, including semiconductors, cloud computing, data centres and advanced technology infrastructure. Continued investment from major technology companies reinforced expectations that AI represents a long-term growth opportunity, while also highlighting the importance of earnings delivery and valuation discipline.

Equity markets were further supported by improving investor confidence and resilient economic activity. Emerging markets benefited from their strategic position within the global technology supply chain, particularly Taiwan and South Korea, where semiconductor demand remained strong. Developed markets also performed well, although investors became increasingly selective as valuations in certain areas of the market remained elevated.

Fixed income markets provided additional portfolio resilience during the quarter. Although inflation remained above central bank targets in many developed economies, declining energy prices helped moderate inflation expectations and reduced concerns over further monetary tightening. At the same time, improving corporate fundamentals and tighter credit spreads supported returns across credit markets.

Looking ahead, the investment environment remains shaped by three key themes:

• Inflation and monetary policy: Central banks remain focused on achieving price stability while balancing the risk of slowing economic growth.
• Artificial intelligence and productivity: Continued investment in technology infrastructure could provide long-term opportunities across sectors and regions.
• Market diversification: With valuations becoming increasingly important, maintaining exposure across different asset classes and regions remains essential.

While geopolitical developments and policy uncertainty are likely to continue influencing markets, the combination of resilient corporate earnings, improving economic conditions and long-term structural trends provides a constructive backdrop for investors. A disciplined and diversified approach remains important in navigating opportunities while managing potential periods of volatility. While market volatility is likely to persist, resilient corporate earnings, improving economic conditions and structural investment themes continue to support a constructive long term outlook for investors.

Inflation and Monetary Policy Remain Key Drivers

Inflation and monetary policy remained key drivers of market performance during the second quarter of 2026, with investors closely monitoring the impact of energy prices, economic growth and central bank policy decisions.

The quarter began with renewed inflation concerns following the increase in oil prices caused by geopolitical tensions. However, the subsequent easing of tensions and decline in energy prices helped moderate inflation expectations and supported a more constructive environment for financial markets.

Central banks continued to adopt a cautious approach, balancing the need to maintain price stability against signs of moderating economic activity.

Main policy developments during the quarter included:

• The Federal Reserve maintained interest rates within the 3.50%–3.75% range, signalling that future decisions would remain dependent on inflation and economic data.
• The Bank of Japan continued its policy normalisation process, increasing its policy rate to 1.0% as wage growth and domestic inflation pressures strengthened.
• Other major central banks maintained a cautious stance as inflation remained above target levels in several economies.

The overall market environment reflected a shift away from expectations of further aggressive tightening towards a period of more stable monetary policy. While inflation remains a key risk, the moderation in energy prices provided some relief and reduced concerns around renewed inflationary pressures.

For investors, the path of monetary policy remains an important driver of asset class performance. A gradual normalisation of interest rates, combined with improving economic conditions, could provide support for both equity and credit markets, although uncertainty remains around the timing and pace of future policy changes.

Equities

Global equities rebounded strongly during the second quarter of 2026, supported by improving investor sentiment, resilient corporate earnings and continued investment in artificial intelligence (AI).

Market performance remained closely linked to the AI investment cycle, with technology and semiconductor companies continuing to benefit from strong demand across the broader AI ecosystem.

Key equity market movements during the quarter included:

• Developed market equities gained 13.9%.
• Emerging market equities outperformed, returning 24.0%.
• Growth stocks continued to outperform value stocks, although market leadership began to broaden during the quarter.

AI remained a significant investment theme; however, investor focus increasingly shifted from AI applications towards the infrastructure required to support adoption, including semiconductors, data centres and cloud computing.

Emerging markets benefited significantly from their position within global technology supply chains, with Taiwan and South Korea among the strongest performers due to their exposure to semiconductor manufacturing and advanced technology exports.

US equities also performed strongly, supported by resilient earnings and continued technology investment. However, by the end of the quarter, investors became increasingly selective as valuations across some AI-related companies reached elevated levels.

The shift towards broader market participation highlighted the importance of maintaining diversified equity exposure rather than relying solely on individual themes. While AI continues to offer significant long-term opportunities, earnings delivery and valuation discipline remain important considerations.

Fixed Income

Fixed income markets delivered positive returns during the second quarter of 2026 despite a challenging interest rate environment. The Bloomberg Global Aggregate Bond Index gained approximately 0.9% during the quarter as improving investor confidence and tighter credit spreads offset the impact of elevated government bond yields.

Government bond markets remained influenced by persistent inflation concerns and expectations around the future path of monetary policy. While central banks maintained a cautious approach, investors increasingly shifted away from expectations of further aggressive tightening towards a more stable interest rate environment.

A key theme during the quarter was the resilience of credit markets. Corporate bonds benefited from:

• Improving economic conditions and reduced recession concerns.
• Stronger corporate balance sheets following years of disciplined financial management.
• Lower geopolitical uncertainty, which supported investor risk appetite.
• Tighter credit spreads, which contributed positively to overall returns.

As a result, corporate bonds generally outperformed government bonds during the quarter, providing investors with additional income and diversification benefits.

The current environment remains supportive for high-quality fixed income assets. Although yields remain above the levels experienced over the previous decade, providing investors with more attractive income opportunities, selectivity remains important given differences in credit quality and regional economic conditions.

Commodities

Commodity markets declined during the second quarter of 2026, with the Bloomberg Commodity Index falling approximately 8.5% as easing geopolitical tensions reduced supply concerns and supported a broader decline in inflation expectations.

Oil was one of the weakest-performing segments during the quarter. Following the initial surge in prices earlier in the year due to concerns around Middle East supply disruptions, oil prices retraced significantly as the probability of prolonged disruptions diminished.

Key factors driving the decline included:

• Lower geopolitical risk premiums following progress towards a ceasefire framework.
• Reduced concerns over supply disruptions in major energy markets.
• Improved expectations around global energy availability.

As a result, oil prices moved towards approximately USD 70 per barrel, falling below the levels reached during the earlier period of heightened geopolitical uncertainty. The decline in energy prices provided some relief to consumers and businesses while reinforcing expectations that inflationary pressures could continue to moderate.

Precious metals also experienced a correction during the quarter as investor demand for defensive assets declined. Gold fell from approximately USD 4,539 per ounce towards the USD 4,000 level, as improving market sentiment and higher expected yields reduced demand for traditional safe-haven assets.

However, the longer-term outlook for commodities remains supported by several structural trends. Demand related to electrification, infrastructure investment and artificial intelligence continues to support selected industrial commodities, while geopolitical uncertainty and central bank demand remain potential sources of support for precious metals.

Overall, the decline in commodity prices during Q2 2026 represented a normalisation following earlier risk-driven gains and contributed positively to the broader disinflation narrative.

Currency

The US dollar experienced a period of volatility during the second quarter of 2026, initially continuing its weakness from earlier in the year before recovering as expectations around monetary policy shifted.

The earlier weakness reflected reduced investor demand for US assets, concerns around fiscal sustainability and expectations that the Federal Reserve could begin easing monetary policy. However, sentiment improved during Q2 as markets reassessed the pace of potential rate cuts and US economic resilience remained evident.

The recovery in the dollar was supported by several factors:

• More favourable yield differentials as expectations for aggressive monetary easing were reduced.
• Resilient US economic data, which supported confidence in the relative strength of the US economy.
• Renewed demand for US assets as investors reassessed global growth and policy risks.

The dollar’s recovery reflected a broader shift in market expectations, with investors placing greater emphasis on differences in economic performance and central bank policy paths across regions. While earlier concerns weighed on the currency, the relative attractiveness of US yields and continued economic resilience provided support.

Summary

Overall, the second quarter of 2026 was characterised by improving investor confidence, easing geopolitical concerns and renewed focus on long-term growth themes.

Key developments during the quarter included:

• A strong recovery in global equities, led by AI-related investment and resilient corporate earnings.
• Positive fixed income returns as credit markets remained supportive.
• Lower commodity prices, particularly oil, which helped improve inflation expectations.
• A recovery in the US dollar as investors reassessed monetary policy expectations.

While risks remain, including geopolitical uncertainty and valuation pressures, the combination of resilient earnings, structural investment themes and improving macroeconomic conditions provides a constructive backdrop for long-term investors.

United Kingdom: Policy Transition and Economic Outlook

The United Kingdom entered the second quarter of 2026 amid a period of political transition and economic uncertainty, with policymakers focused on improving growth prospects while addressing persistent inflationary pressures.

The government’s policy agenda has centered around structural reforms, public spending priorities and potential changes to the tax framework. Discussions around increasing investment in strategic sectors, improving infrastructure and reforming public services reflect a broader ambition to strengthen long-term economic growth. However, the scale and implementation of these measures remain important considerations for investors, particularly given the UK’s existing fiscal constraints.

A key area of debate has been the potential shift towards greater taxation of wealth and assets, alongside possible changes to capital gains taxation and other revenue-raising measures. While such reforms could support public finances over the longer term, uncertainty around their design and implementation may continue to influence business confidence and investment decisions in the near term.

Inflation remains a key challenge for the UK economy. Consumer price inflation remains above the Bank of England’s 2% target, with services inflation and previous energy-related cost pressures contributing to a slower path towards price stability. As a result, the Bank of England has maintained a cautious approach, balancing the need to control inflation against signs of moderating economic activity.

Key factors influencing the UK outlook include:

• Inflation persistence: Services inflation and wage pressures remain areas of focus for policymakers.
• Interest rate expectations: Markets anticipate rates will remain elevated for longer as the Bank of England assesses the sustainability of disinflation.
• Growth challenges: High borrowing costs and weaker consumer confidence continue to weigh on domestic activity.
• Structural reforms: Successful implementation of growth-oriented policies could improve the UK’s longer-term economic prospects.

From an investment perspective, UK equities continue to trade at relatively attractive valuations compared with global peers. However, the market remains constrained by weaker domestic growth expectations and a sector composition that is more heavily weighted towards traditional industries compared with technology-focused global markets.

Overall, the UK outlook remains a balance between near-term uncertainty and longer-term opportunity. While monetary policy and fiscal developments are likely to influence sentiment in the short term, improvements in economic stability and successful structural reforms could provide a more supportive backdrop over time.

Market performance to 30 June 2026

Macroeconomic Outlook

The global economy enters the second half of 2026 with a more balanced outlook, supported by moderating inflation, resilient corporate activity and improving financial conditions. While growth remains below the levels seen in previous cycles, concerns around a sharp global slowdown have eased as consumer spending remains relatively stable and businesses continue to invest in long-term growth opportunities.

Economic performance, however, remains uneven across regions. The United States continues to demonstrate resilience, supported by strong corporate investment and ongoing spending in technology and artificial intelligence infrastructure. Europe faces a more challenging environment, with weaker domestic demand and slower industrial activity weighing on growth prospects. Emerging markets remain supported by structural growth drivers, improving export conditions and increasing investment in technology and infrastructure.

GDP growth:

Global growth is expected to remain positive but moderate as economies continue to adjust to higher interest rates. The resilience of corporate investment, particularly in areas such as artificial intelligence, digital infrastructure and energy transition, remains an important support for economic activity.

The main factors shaping the growth outlook include:

• Resilient business investment: Continued spending on technology and infrastructure is supporting productivity and long-term growth potential.
• Moderating consumer activity: Higher borrowing costs continue to weigh on households, although labour markets remain relatively supportive.
• Regional divergence: The US and selected emerging markets are expected to outperform regions facing weaker domestic demand.

While recession risks have moderated, the outlook remains sensitive to geopolitical developments, inflation trends and the impact of restrictive monetary policy

Real GDP growth forecasts

Source: IMF

Annual real GDP growth rates from 1980 to 2030 for the major economies.

Inflation expectations

Inflation continues to moderate across major economies, although the pace of improvement has been slower and more uneven than initially expected. While the decline in energy prices during the quarter helped ease headline inflation pressures, renewed volatility in commodity markets and persistent services inflation continue to influence the outlook.

Inflation dynamics are expected to remain different across regions, reflecting variations in energy dependence, exchange rate movements, labour market conditions and domestic demand trends.

In the United States, inflation remains above the Federal Reserve’s 2% target, with services inflation and resilient economic activity contributing to a more gradual path towards price stability. As a result, expectations for rapid monetary easing have moderated, with the Federal Reserve expected to remain cautious in adjusting policy.

In Europe and the United Kingdom, inflation risks remain more sensitive to energy prices due to greater reliance on imported energy. While inflation has declined from previous peaks, persistent services inflation and wage pressures continue to support a more cautious outlook for the pace of disinflation.

In Japan, inflation dynamics remain closely linked to wage growth and currency movements. Although earlier food and commodity price pressures are expected to ease, the weaker yen continues to create upward pressure through higher import costs. Meanwhile, China continues to experience a more subdued inflation environment, reflecting weaker domestic demand and ongoing adjustments within the property sector.

Overall, inflation is expected to continue trending lower, but the final stage of returning towards central bank targets is likely to be gradual. This reinforces the likelihood that monetary policy will remain dependent on incoming economic data rather than following a predetermined path.

Inflation expectations (%)

Source: Trading Economics

Core inflation trends across major economies (US, EA, UK, China, and Japan) from 2021 to 2025.

Interest rate expectations:

The global monetary policy environment has entered a more cautious phase as central banks continue to balance persistent inflation pressures against moderating economic growth. While the aggressive tightening cycle of 2022 and 2023 has largely passed, policymakers remain focused on ensuring that inflation continues to move sustainably towards target before committing to further easing.

In the United States, expectations for monetary easing have moderated as inflation has remained more persistent than initially anticipated. Earlier expectations of approximately 50 basis points of rate cuts have been pushed back as the Federal Reserve maintains a data-dependent approach, prioritising price stability while monitoring economic resilience.

The European Central Bank has also adopted a more cautious stance as inflation pressures, particularly from services and energy costs, remain a concern. While economic activity remains subdued, policymakers continue to balance the need to support growth against the risk of inflation proving more persistent than expected.

In contrast, Japan continues to move in the opposite direction, gradually normalising monetary policy after decades of ultra-low interest rates. Following the exit from negative interest rates, the Bank of Japan has moved its policy rate towards 1.0%, reflecting stronger wage growth and a more sustainable inflation environment. However, the weaker yen remains a key consideration as it contributes to higher import costs and inflation risks.

Meanwhile, China remains an exception among major economies, with monetary policy expected to remain supportive as policymakers focus on stimulating domestic demand and addressing challenges within the property sector. The lower inflation environment provides greater flexibility for authorities to maintain an accommodative policy stance.

From a broader perspective, the current interest rate environment represents a structural shift compared with the decade following the global financial crisis, when ultra-low rates and abundant liquidity dominated markets. Although policy rates have begun to decline from their peaks, they are expected to remain structurally higher than pre-2022 levels.

Interest Rate Expectation (%)

Source: Trading Economics

Interest rate trends for major economies (US, EA, UK, China, and Japan) from 2021 to 2026.

Asset class views

Equities: Neutral

• We remain neutral on equities, balancing a constructive 12–18 month growth outlook supported by global fiscal stimulus, resilient economic activity and continued AI-related investment against elevated geopolitical risks arising from the Iran conflict.
• Corporate fundamentals remain supportive, with double-digit earnings growth expected over the next 12 months. While tensions in the Middle East may persist and create temporary disruptions to energy markets, we expect broader markets to look through short-term setbacks absent a material impact on global growth.
• Sentiment and positioning have strengthened but remain short of exuberant levels, providing a supportive backdrop for risk assets. On balance, favourable growth and earnings dynamics are offset by geopolitical uncertainty, supporting a neutral allocation stance.

Fixed Income: Underweight

• We maintain a moderate underweight to overall credit risk, as current spread levels offer less attractive compensation relative to alternative sources of return within a diversified portfolio. While resilient economic growth remains supportive, elevated valuations and persistent inflation warrant a more selective approach to credit exposure.
• Inflation continues to prove sticky, keeping global real yields elevated and contributing to a reassessment of monetary policy expectations. Although markets have priced in a more hawkish outlook, we believe slowing demand dynamics may ultimately play a larger role in shaping policy decisions than currently anticipated.

Alternatives: Neutral

• We maintain a neutral stance on commodities, balancing the support from higher energy prices and long-term demand trends against the view that much of the geopolitical risk premium associated with the Middle East conflict is now reflected in market prices.
• Beyond near-term geopolitical developments, growing energy requirements from AI-related infrastructure investment and continued demand for industrial metals provide a constructive longer-term backdrop for the asset class.
• While commodities continue to offer diversification benefits, we also see attractive opportunities in other alternative assets, including private markets. On balance, the combination of supportive structural drivers and largely priced-in geopolitical risks supports maintaining a neutral allocation stance.

Cash: Neutral

• We maintain a neutral stance on cash, recognising its liquidity and capital preservation benefits in an uncertain market environment. While cash yields remain attractive, they are modestly below short-term bond yields, limiting the case for an overweight allocation.
• Improving opportunities across fixed income markets and more attractive bond yields support a balanced allocation between cash and other defensive assets. Within currencies, we remain constructive on the US dollar, supported by its defensive characteristics and relatively attractive short-term interest rates.
• On balance, current yield levels and market conditions support maintaining a neutral cash allocation stance.

Equities

United States: Neutral

• We maintain a neutral stance on US equities, balancing strong earnings growth, resilient economic activity and continued AI-driven investment against elevated valuations and potential inflationary risks.
• Corporate fundamentals remain supportive, with robust earnings growth extending beyond the technology sector as AI-related capital expenditure drives demand across infrastructure, power and industrial segments. However, the pace of investment raises the risk of overly optimistic earnings expectations.
• While resilient growth and stabilising labour market conditions continue to support investor sentiment, elevated energy prices could increase inflation and policy uncertainty. On balance, these factors support a neutral allocation, with a preference for large-cap core equities to mitigate concentration risk.

Europe: Neutral

• We maintain a neutral stance on European equities, balancing attractive valuations and ongoing fiscal support against a subdued growth backdrop and continued structural challenges across the region.
• Economic activity remains constrained by weak domestic demand, rising input costs and persistent headwinds in Germany, including high energy costs, labour shortages and regulatory burdens. Elevated energy prices also pose a greater risk to Europe given its higher dependence on external energy supplies.
• While valuations provide some support and fiscal measures may help underpin growth, uncertainty around the economic outlook and corporate profitability supports maintaining a neutral allocation stance.

United Kingdom: Neutral

• We remain neutral on UK equities, recognising that valuations remain attractive relative to the US and that signs of cyclical improvement are emerging. However, limited near-term catalysts and ongoing fiscal constraints temper the investment case.
• The UK continues to face macroeconomic headwinds, including slowing growth, a weakening labour market and softer consumer spending trends. Higher energy prices may further constrain policy flexibility and increase stagflation risks.
• While earnings revisions have benefited from the energy sector and broader earnings trends have improved, uncertainty around the growth outlook supports maintaining a neutral allocation stance.

Emerging Markets ex China: Overweight

• We are overweight emerging market equities ex-China, while remaining selective in positioning, balancing supportive global growth, stable currencies and improving earnings expectations against concentration risks and a narrower breadth of market performance.
• Earnings growth is being driven by strong demand for AI-related hardware and semiconductor components across Asia, though leadership remains concentrated in a limited number of sectors and companies, reinforcing the need for selectivity.
• While Asian technology exporters and commodity-producing markets continue to benefit from favourable structural trends, elevated energy prices could increase inflation and external pressures. On balance, these factors support an overweight allocation with a selective approach across regions and sectors.

China: Neutral

• We remain neutral on Chinese equities, balancing improving policy stability and selective sector opportunities against ongoing structural headwinds in the property market and weak domestic demand.
• The economy continues to exhibit a K-shaped recovery, with resilient export activity offset by subdued domestic consumption, reducing the urgency for large-scale policy stimulus. While trade relations with the US have stabilised, property sector weakness and demographic headwinds continue to weigh on the broader macro-outlook.
• Policy support, including anti-involution measures and targeted reforms, may help improve medium-term profitability in selected sectors such as AI, automation and power generation. However, persistent housing market stress and external pressures from higher energy costs support maintaining a neutral allocation stance.

Japan: Neutral (downgraded)

• We downgrade Japanese equities to neutral, balancing ongoing structural support from corporate reforms and fiscal measures against rising energy import sensitivity and softer earnings momentum.
• Near-term sentiment has weakened as geopolitical tensions increase energy cost pressures, while earnings estimates have stagnated amid fading macro confidence and concerns around the pace of reflation.
• While medium-term reforms and policy support remain in place, they are insufficient to offset near-term headwinds. On balance, this supports a neutral allocation stance.

India: Neutral (downgraded)

• We remain overweight Indian equities, supported by a strong domestic growth and earnings outlook driven by consumption strength, structural investment trends, and improving capital market participation.
• Valuations remain stretched versus EM peers, with limited margin for error amid a heavy equity supply pipeline from IPOs and secondary issuance, constraining near-term upside.
• Macro risks have also increased, including higher energy sensitivity and El Niño-related monsoon uncertainty, which could weigh on rural demand, inflation and corporate margins. While India’s medium-term structural story remains intact, these cyclical and valuation pressures support a neutral allocation stance.

Australia: Underweight

• We remain underweight stance on Australian equities, balancing supportive resource demand and attractive valuations against deteriorating domestic growth and tightening financial conditions.
• The market’s heavy exposure to financials and materials has supported performance, particularly amid strong commodity demand, but this concentration also increases sensitivity to cyclical slowdowns and weaker credit dynamics.
• Slowing credit growth, combined with higher interest rates and potential policy tightening to address inflationary pressures, is expected to weigh on bank earnings and broader economic activity. On balance, these headwinds support an underweight allocation stance.

Middle East: Neutral

• We remain neutral on Middle East equities, as elevated geopolitical tensions and conflict-related volatility are offset by supportive oil prices and improving fiscal positions across key GCC economies.
• Despite strong non-oil growth momentum and resilient domestic expansion, heightened uncertainty around energy supply routes and global stagflation risks continues to create a wide range of potential outcomes for markets.

South Korea: Neutral

• We remain neutral on South Korean equities, as strong export momentum driven by semiconductor demand and supportive fiscal measures is balanced against rising geopolitical uncertainty, export volatility, and slowing growth dynamics into the second half of 2026.
• While the technology and chip cycle continues to provide a meaningful tailwind, risks from supply chain disruptions, energy-related cost pressures, and tighter policy conditions are expected to moderate the pace of economic and earnings growth, limiting near-term upside.

Fixed income

Investment Grade bond: Neutral

• We remain neutral on investment-grade bonds, balancing resilient corporate fundamentals and attractive absolute yields against tight spreads and a less favourable risk-reward profile.
• Credit quality remains supportive with stable balance sheets and improved guidance, but elevated issuance, particularly from large technology issuers funding AI-related capex, has increased supply and weighed on valuations.
• While yields are attractive, tighter spreads and potential upward pressure on rates from sticky inflation and fewer expected Fed cuts limit upside. On balance, these factors support maintaining a neutral allocation stance.

Emerging Market bond: Overweight

• We remain overweight emerging market bonds, supported by attractive yields, improving fundamentals and a constructive long-term policy and governance backdrop.
• Local-currency EM debt continues to offer compelling carry, with expectations for a softer US dollar providing additional tailwinds, though geopolitical tensions may create a more bifurcated near-term environment.
• While near-term sentiment can be influenced by dollar strength and regional macro risks, improving fiscal and monetary discipline alongside governance reforms should support sustained foreign inflows. On balance, these factors justify an overweight allocation stance.

High Yield: Neutral

• We remain neutral on high yield credit, balancing attractive carry and a low duration profile against tight spreads and more compelling relative opportunities in equities.
• While the asset class continues to offer healthy yields with broadly contained default expectations, limited spread cushion constrains further upside and reduces the attractiveness of incremental risk-taking.
• We also expect greater dispersion between higher- and lower-quality issuers, reinforcing the need for selectivity. On balance, these factors support maintaining a neutral allocation stance.

Commodities

Energy: Neutral

• We maintain a neutral stance on energy, balancing supportive structural demand drivers against an improving supply backdrop and increased volatility from geopolitical developments.
• Global energy markets continue to be underpinned by steady demand and longer-term consumption needs, including industrial activity and electrification-related inputs. However, supply responses and strategic production adjustments have helped prevent sustained upward price momentum.
• While geopolitical risks can create periodic spikes in prices, these tend to be short-lived in the absence of sustained supply disruptions. On balance, the mix of stable demand and adequate supply supports a neutral allocation stance.

Precious Metals: Neutral

• We maintain a neutral stance on precious metals, balancing support from geopolitical uncertainty and demand for diversification against elevated real yields and a more stable risk environment.
• Gold and other precious metals continue to benefit from episodic risk-off flows and their role as portfolio hedges during periods of macro and geopolitical stress. However, relatively high real interest rates limit upside by increasing the opportunity cost of holding non-yielding assets.
• While structural demand from central banks provides a supportive backdrop, the combination of macro stabilisation and restrictive monetary conditions supports maintaining a neutral allocation stance.

Industrial Metals: Overweight

• We remain overweight industrial metals, supported by strong structural demand from electrification, AI-driven infrastructure build-out, EV adoption and sustained investment in global power and grid systems.
• Copper remains the key beneficiary, underpinned by a persistent structural supply deficit and accelerating demand from energy transition and digital infrastructure, while aluminium and other base metals also benefit from constrained supply growth and their critical role in industrial decarbonisation.
• Although cyclical growth uncertainty and volatility remain, structural demand drivers continue to dominate, supporting a constructive overweight allocation stance across the complex.

This article is general market commentary, not investment advice or a personal recommendation. The value of investments can fall as well as rise, and past performance is not a guide to future returns. Written and reviewed under our editorial standards.