“At the start of the year, markets anticipated moderating inflation and the beginning of central bank rate cuts. More recently, renewed geopolitical tensions in the Middle East pushed oil prices sharply higher and temporarily lifted inflation expectations,” Bhaskar Laxminarayan, chief investment officer Asia and Middle East at Julius Baer, said in a recent presentation. Laxminarayan spoke alongside Mark Matthews, head of research Asia at Julius Baer.

Yet financial markets, while hardly calm, have seen global equities reach new highs, supported by solid corporate earnings and ongoing investment activity. The Swiss bank remains positive on equities in 2026, notably US and Asian ones, AI and gold.

The S&P 500 Index of US stocks is up 7.23 per cent since the start of 2026, but over the past week, it fell 2 per cent, as investors became queasy about whether AI-linked Big Techs can deliver revenues to justify all the capital expenditure going on. It has been an area of debate throughout this year, as this news service has heard on both sides of the Atlantic. Over one year, the Index is up 18.5 per cent and over five years, 69 per cent. 

Shifts are taking place. In Laxminarayan's view, the environment is reinforcing a structural shift toward higher investment needs across defense, energy, artificial intelligence, and supply chain resilience. After years of abundant global savings weighing on bond yields, demand for capital is now rising more visibly. “In short, periods of market volatility should continue to be viewed as opportunities to redeploy cash and remain invested,” he said.

Equities
Matthews, meanwhile, stressed how equities have rebounded since March on strong earnings, easing geopolitical concerns, and AI momentum. “While the US has regained leadership, opportunities are broadening across regions. With sentiment improving but not excessive, a balanced and selective approach remains appropriate for the second half of 2026,” he said.

“We have a constructive global stance on equities. In the US, we favor AI-related sectors with strong earnings momentum. This supports US equities, while Asia – China and Japan, specifically – forms an integral part of the AI value chain,” he continued. Matthews remains constructive on Asian equity markets, given their role in the AI supply chain. He favors North Asia – Japan, South Korea, China. In South Asia, he prefers Singapore and India for country-specific reasons. “India remains attractive with longer-term upside, and Singapore and Switzerland offer defensive strength,” he said.

Within Asia, he believes that opportunities remain broad but are becoming increasingly differentiated. “Japan stands out as a key beneficiary of AI optimism, underpinned by strong earnings revisions and ongoing corporate governance reform,” he added.

In emerging Asia, Matthews believes that China remains a key allocation. Beneath the surface, AI-related segments – particularly onshore – have shown strong momentum.

Matthews highlighted that AI remains the dominant market driver: “The investment cycle continues to accelerate, supported by strong capital expenditure and rising demand for data center capacity, while signs of monetization are reinforcing earnings growth.” 

He upgraded the communications sector to overweight, reflecting both accelerating monetization among internet platforms and the defensive characteristics of telecommunications operators. “Financials remain attractive due to compelling valuations and strong capital returns, while healthcare offers further diversification through innovation and structural growth,” he said.

Fixed income
“By mid-2026, hawkish central bank expectations are priced in, making yields more attractive. High-quality bonds may benefit as oil prices ease, supporting an overweight duration stance,” Matthews said.

Julius Baer’s fixed income research team favors extending duration in bond portfolios if and when 10-year US Treasuries trade around 4.5 per cent, and trimming again as yields move towards 3.5 per cent.

“Investment-grade corporate bonds look attractive, supported by healthy balance sheets,” Matthews said. “Alongside this, emerging market bonds in hard currencies and select emerging market local-currency debt remain a useful diversifying element, offering access to higher real yields.” 

Gold and oil
Similar to a number of wealth managers, Laxminarayan has a preference for gold, which remains supported by structural central bank demand and safe-haven buying. Over the longer term, he believes that gold’s fundamentals remain supportive.

He expects oil prices to moderate during the second half of 2026, while the global economy is adjusting to the energy shock without further escalation.

Alternative investments
Laxminarayan highlighted that private markets are seeing moderating activity amid higher interest rates and valuation uncertainty. Thus, manager selection remains critical. In private equity, he favors managers with strong execution and operational value creation. In private debt, especially European direct lending, he believes that it remains attractive for its yield, diversification potential, and floating-rate exposure.

“Private infrastructure provides downside protection and differentiated performance, with exposure to structural demand from AI, the energy transition, and reshoring,” Laxminarayan said. “Multi-strategy hedge funds are well positioned to capture dispersion, dynamically allocate risk, and manage drawdowns.

Laxminarayan thinks that geopolitics, policy errors, AI overspend, credit stress, trade tensions, and leverage are significant risks. “Periods of geopolitical stress and energy shocks may continue to influence inflation expectations and market volatility,” he said.