Asia ex-Japan, Institutional
Change
Inflationary implications of energy shock challenge growth
Despite heightened geopolitical uncertainty and the risk of sustained higher energy prices, the market remains priced for a relatively swift and lasting resolution of the US-Iran conflict and normalization of energy supply and prices as well as growth and inflation. We believe markets may be underestimating the persistence of inflation. If, as we think, energy prices stay higher for longer, we could see increased divergence to the detriment of the worst fiscal offenders.
Outlook contents
Global Economic Outlook
Growth remains intact, but the US-Iran conflict raises risks of higher energy prices, firmer inflation, weaker policy credibility, and wider regional divergence.
Asset Allocation Outlook
Amid the possibility of heightened volatility, our experts favor US and emerging markets equities, European rates, quality credit, and gold, while remaining cautious on oil as well as UK and European equities.
Bond Market Outlook — Rates
Generally higher yields support core fixed income but likely volatility and uncertainty surrounding the impact of the US-Iran war point to the need for a flexible approach. Local opportunities may emerge that active investors can exploit.
Bond Market Outlook — Credit
Today’s supply shock world demands a distinct approach to credit positioning with moderately lower duration and greater emphasis on credit selection. We see several standout sector opportunities but, above all, advocate balance and heightened diversification.
Equity Market Outlook
Are we nearing the end of US exceptionalism, or will US equity leadership persist into 2027? The answer may be both. We explore the evolving signals for investors to focus on in the second half of 2026 and outline the investment implications of both truths: ongoing but evolving US leadership and the need to prepare for its potential weakening.
The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.