Eastspring Investments
July 2026|5 min read
Summary
Geopolitical tensions remain elevated and are likely to generate periodic volatility but the broader backdrop remains supportive of risk assets, underpinned by resilient global growth, healthy labour markets and the ongoing AI-led capex cycle. Eastspring’s Multi-Asset Portfolio Solutions (MAPS) team is tactically constructive on global equities over a 3-month horizon, favouring US, Emerging Markets and Asia over Europe. Within fixed income, the team is neutral on US government bonds, prefers US high yield over investment grade bonds and is constructive on Emerging Market hard currency debt.
Macro: Uneven growth, higher inflation, tighter policy
Full year 2026 global growth is likely to be about 3.0%, down from about 3.5% before the US-Iran war inspired energy shock, with Europe and Southeast Asia bearing most of the drag from higher energy prices. However, linkages to the Artificial Intelligence (AI) capital expenditure boom are driving dispersion in growth. Singapore, Malaysia, Taiwan, Korea and Thailand are benefiting from tech and data centre investment. China should grow 4.8% as weaker housing and delayed fiscal measures offset exports and strategic industrial spending. India’s GDP growth should slow to 6.5% due to the energy shock and a weak monsoon drag on agriculture.
Although energy prices have fallen from the April highs, they remain at levels that point to pressure higher goods price inflation in the coming quarters. Asian inflation has begun to rise, both because of higher energy prices and persistently high GDP growth. We see inflation rising above historic averages in all countries except China. Higher inflation is likely to drive policy tightening in India, Indonesia, Korea, Malaysia, the Philippines, and Taiwan.
We expect the US Federal Reserve (Fed) to raise the Fed Funds rate by 25bps at its September or October meeting based on our outlook for US employment growth to remain robust and core inflation to remain sticky. In Asia, rate hikes are likely where inflation, currency pressure or external balances are most stressed. Policy rates are likely to rise in Indonesia, India, Korea, the Philippines and Taiwan.
Asset Allocation: Tactically risk‑on with restraint while staying nimble and vigilant
The macroeconomic backdrop over the next one to three months remains constructive for global equities, underpinned by a reassertion of the soft-landing narrative across major economies. The scope for continued upgrades to earnings expectations in the US and select Emerging Markets, particularly in sectors such as technology hardware, power equipment, and materials etc. underpins our preference for equity markets outside Europe.
The neutral stance on US government bonds is a result of counterbalancing factors; higher starting yields and moderating growth expectations are important offsets against the elevated inflation risks. On credits, US high yields offer attractive all-in-yields compared to US investment grades while Emerging Market USD bonds appeal due to attractive carry, resilient fundamentals, and an ongoing demand for income-oriented assets.
This is an extract from our Q3 2026 Market Outlook. Click here to download the full report which includes a special feature “Why past tech cycles matter for AI investors”.
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