Amid a backdrop of soaring stock prices and a surge in global equity markets, asset managers are embracing a risk-on strategy, betting on resilient growth and technological advancements to drive further gains. This optimism is fueled by the belief that artificial intelligence, accommodative monetary policies, and fiscal stimulus will continue to deliver outsize returns in the coming years.
In a recent survey of 39 investment managers across the US, Asia, and Europe, including prominent firms like BlackRock, Allianz, Goldman Sachs, and Franklin Templeton, it was revealed that over three-quarters are positioning their portfolios for a risk-on environment through 2026. This strategy is underpinned by the expectation of solid growth and easier monetary and fiscal policies, leading to a continued focus on stocks and credit.
However, this bullish stance is not without its risks. The widespread optimism among respondents and the high degree of confidence in their predictions raise questions about the possibility of a market bubble. Despite this, many asset managers dismiss the idea, citing strong fundamentals and the potential for a new industrial cycle driven by AI.
The US is seen as the primary engine of the rally, with investors highlighting the exceptionalism of American companies in the AI space. However, some caution that the US market may be fully valued, suggesting that opportunities may lie elsewhere, particularly in emerging markets like India, which is expected to undergo a re-rating similar to South Korea's in 2026.
At the sector level, investors are seeking AI proxies, particularly in clean energy, and favoring smaller stocks. Small-cap stocks and industrials are expected to benefit from rising profitability as interest rates fall and debt servicing costs decrease. Healthcare is also seen as a compelling contrarian opportunity due to its low valuations and strong fundamentals.
Despite the overall positive outlook, asset managers remain vigilant about potential risks. The top concern is a resurgence of inflation in the US, which could force the Federal Reserve to pause or end its easing cycle, leading to market turbulence. Additionally, the capriciousness of President Donald Trump's trade policies and geopolitical tensions, particularly regarding oil prices, are seen as potential triggers for market volatility.
Despite these warnings, the prevailing sentiment among asset managers is one of cautious optimism. They believe that the upward momentum is likely to continue, but they remain aware of the contrarian signal sent by the near-uniform bullishness in the market.
