Oct 2026|5 min read
Put the quarter in perspective. download the full Q4 2026 market outlook for our macro and asset allocation views or view the infographic for a quick overview.
Summary
Global growth remains resilient as we enter the fourth quarter of 2026, but higher energy prices, persistent inflation and tighter monetary policy are testing the outlook. Across Asia, technology exports and AI investment continue to support activity, even as growth is expected to moderate.
Macro: Uneven growth, higher inflation, tighter policy
Asian economic growth is likely to moderate gradually over the next several quarters from the above trend expansion in the first three quarters of 2026. Growth in global Artificial Intelligence (AI) capex spending, although still very high, is likely to moderate as the installed capex base rises. Persistently higher global energy prices, combined with strong technology export-led growth, have pushed inflation from below to above target across much of Asia. As a result, we expect further interest rate increases through Q1 2027. Fiscal policy support for economies is also likely to diminish as countries reduce energy subsidies to repair budget deficits. China is the main exception with the fiscal underspending in Q1 – Q3 likely to reverse through H1 2027.
However, slower growth does not mean slow growth. We expect policy support to sustain China’s GDP growth at 4.5% in 2027, while Japan’s robust profit and capex cycle should keep growth near its 0.9% potential rate. India’s growth is expected to moderate from 7.6% this year to 6.8% next year but remain at or slightly above potential. In North Asia, slower but still robust semiconductor exports should keep growth above long-term potential in South Korea and Taiwan, at 3.0% and 6.5% respectively. Malaysia and Singapore should also continue to benefit from the global AI infrastructure spending boom.
Two key risks stand out. First, any downward shock to AI spending would weaken growth across the region. Second, India, Indonesia, and the Philippines are vulnerable to El Nino-related damage to agriculture and household consumption.
Asset Allocation: Tactically risk‑on with restraint while staying nimble and vigilant
Global growth has remained resilient despite elevated geopolitical tensions, supported by healthy labour markets, steady earnings growth and continued investment in AI, power generation and related infrastructure. While policy uncertainty and geopolitics are likely to trigger periods of volatility, we remain tactically constructive on risk assets over a three-month horizon. Over the longer term, however, policy uncertainty and elevated valuations in some markets warrant a more selective approach. Within equities, we continue to favour the US, Emerging Markets (EM) and Asia over Europe.
Within fixed income, higher bond yields have enhanced the attractiveness of government bonds.As a result, we have turned more constructive on US Treasuries over both a 3 and 12-month horizon. Within credit, we continue to favour US high yield over investment grade bonds, given resilient corporate fundamentals, attractive all-in yields and sustained investor demand. We also remain constructive on EM hard currency debt, where attractive carry and resilient fundamentals continue to support return potential despite potential near-term volatility.
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