Beyond the AI boom: A broader market awakens

By Raj Singh
Portfolio Manager, Multi-Asset

Tensions between the U.S. and China briefly rattled markets, triggering a risk-off response. However, a more measured tone from both sides helped restore calm. This episode serves as a reminder of the latent risks in global trade relations, which had faded from focus but still hold sway over investor sentiment. Despite these jitters, the broader macro backdrop remains constructive. Resilient growth, supported by monetary and fiscal policy and transformative technology investment, suggests markets can absorb shocks and maintain momentum.

The S&P 500 has surged from its Liberation Day low, driven initially by booming AI investment. Technology investment alone is estimated to have contributed roughly one-third of real U.S. GDP growth in the first half of the year. Now, the rally is broadening to include cyclical sectors. This shift reflects growing confidence in earnings and signals a more durable expansion.

Historically, equities perform well when the Federal Reserve cuts rates outside of a recession. Today’s environment—marked by policy easing and strong tech investment—sets a constructive tone for 2026. While labor market data has softened, broader indicators remain resilient, pointing to only modest slowing. With recession risks subdued, Fed easing is likely to support continued economic growth.

In China, domestic policymakers have taken a different approach to stimulus, focusing on consumption rather than investment. Measures such as trade-in programs, birth subsidies, and consumer loan interest subsidies have helped revive confidence. Consensus forecasts for China’s 2025 GDP growth have rebounded, and retail investor sentiment is improving.

Recent data shows a rotation from household bank deposits into non-bank financial institutions—a sign of increased market participation. With deposits still elevated, this trend could continue, providing further momentum for equities. However, the pace of the rally matters. A balanced policy approach that avoids excesses could support a healthy, long-lasting bull market.

Despite early-year macro headwinds, Chinese equities have delivered positive performance. The consumption-led stimulus has been a key driver, restoring retail confidence. While short-term flows may fuel further gains, the sustainability of the rally depends on policy discipline. A durable bull market will require more than liquidity—it needs measured stimulus and structural reform.

Elsewhere in Asia, Taiwan and Korea continue to benefit from the structural AI tailwind. India, meanwhile, faces headwinds from U.S. immigration and trade policies, with assets underperforming. Yet the domestic growth story remains intact, presenting opportunities for long-term investors as reforms accelerate and recent signals from both US and India side on trade talks have been constructive helping Indian assets to regain some footing in October.

Elsewhere in Asia, Taiwan and Korea continue to benefit from the structural AI tailwind. India, meanwhile, faces headwinds from U.S. immigration and trade policies, with assets underperforming. Yet the domestic growth story remains intact, presenting opportunities for long-term investors as reforms accelerate and recent signals from both US and India side on trade talks have been constructive helping Indian assets to regain some footing in October.

Valuations across credit sectors are tight, but fundamentals remain supportive. Investment-grade corporates benefit from strong balance sheets and favorable supply-demand dynamics. In high yield, refinancing has improved credit quality and extended maturities, though tighter spreads require selective positioning. Emerging markets are regaining momentum, driven by rate cuts, improving real yields, and renewed capital inflow especially in local currency debt. With dispersion rising across geographies, credit tiers, and structures, active management is essential. Fixed income remains a vital source of income and stability, but precision in allocation will be key in today’s fragmented environment.

Risks remain, including a sharper downturn in employment or renewed fiscal stress that could push bond yields higher. However, the combination of rate cuts, deregulatory policies, and sustained AI-driven investment creates a positive setup for risk assets heading into 2026.