To The Moon

The case for staying invested: Growth still outweighs the risks

Over the past few months, investors have become increasingly focused on a range of late-cycle risks. Rising bond yields, persistent inflation, fuller capacity utilisation and labour markets with low unemployment rates have all contributed to concerns that the current economic expansion is operating under late cycle conditions. As a long-term investor, these are risks that I continue to monitor closely.

Yet, despite an increasingly complex backdrop, the global economy continues to demonstrate remarkable resilience. Growth remains broadly supported across major regions, corporate earnings continue to exceed expectations, and business investment remains healthy.

While the current environment exhibits several late-cycle characteristics, we do not believe we see risks that are sufficient to stall growth or equity markets in the coming year. Historically, late-cycle conditions can persist for extended periods, and strong earnings growth has often continued well beyond the point when investors begin to worry about the end of the cycle. In our view, the balance of evidence continues to support a constructive stance towards growth assets.

First, we have a more sanguine view on inflation than the market. While inflation has remained persistent, many of the factors driving price pressures are showing signs of moderation. As a result, we do not expect an aggressive rate hiking cycle, nor do we believe bond yields will continue to surge higher.

At the same time, corporate earnings have generally kept pace with, and in many cases exceeded, equity market gains. This means that valuations are less stretched than headline market performance might suggest. Indeed, earnings growth has been strong enough that valuations have generally become less demanding over the course of 2026.

We are also encouraged by the continued strength of investment spending, particularly in artificial intelligence (AI). While questions remain around AI valuations, regulation and long-term adoption trends, the reality is that AI-related spending continues to bolster corporate earnings, economic activity and business investment. Beyond supporting earnings growth, AI also has the potential to drive meaningful productivity gains across the broader economy.

Overweight equities

Against this backdrop, we remain overweight equities, with a preference for the US and Asia. The US continues to offer a compelling combination of earnings growth, innovation and market depth. Asia, meanwhile, has been the best-performing major region over the past two years and remains one of our preferred markets.

Asia offers attractive long-term fundamentals, supported by stronger economic growth, compelling valuations and leadership positions in industries such as semiconductors, memory, alternative energy and electric vehicles.

While technology companies are likely to remain an important driver of regional performance in the near term, we believe Asia's advantages extend well beyond technology. As geopolitical risks gradually recede, we expect market leadership to broaden across the region, allowing Asia's strong underlying economic fundamentals to become a more important driver of returns once again.

Overall, the combination of resilient growth, healthy corporate earnings and sustained investment activity gives us confidence that the expansion can continue even as volatility remains elevated. In our view, this remains a supportive backdrop for long-term investors to stay invested.

Here are four key themes we are watching in the quarter ahead.

Here’s a summary of our views

• We expect global growth to remain resilient, supported by healthy economic activity, strong corporate earnings and ongoing AI-related investment.

• We continue to favour equities, particularly the US and Asia, where earnings growth remains strong and structural growth drivers remain compelling.

• Bond yields have become increasingly attractive. We expect the Fed Funds rate to peak around 4.25 to 4.5 percent, with 10-year US Treasury yields likely to trade within a range of 4.5 percent to 5.0 percent.

• We remain constructive on commodities and gold, supported by demand linked to AI infrastructure, the energy transition and their role as portfolio diversifiers.

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