Multi-Asset: Positioning portfolios with selective risk

Overview 

As we approach 2026, investors are faced with a complex landscape shaped by softer (albeit still positive economic growth), above-target (though gradually easing) inflationary pressures, cautious central bank policy shifts, and persistent geopolitical uncertainties.  

Although risks remain on the horizon, we believe that a ‘just-right’ scenario is most likely in the near term, where central banks should be able to sustain a low but improving growth environment without excessive inflationary pressures. Overall, we view this market backdrop as relatively constructive and anticipate modest positive returns across risk assets over the coming months and quarters.           

Macroeconomic views and key risks 

Global growth is projected to ease slightly below 3%, a level often considered the long-term trend for global GDP, with the sharpest slowdown expected in the United States. US GDP growth is set to decline below its long-term rate of 2%, driven by elevated long-term interest rates that are dampening consumption, alongside ongoing uncertainties such as trade tariffs and changes in immigration policy. Labour market conditions have also softened, with employment growth falling well below the historical average of 150,000–200,000.         
 
However, in our view, this low-growth environment lacks the negative momentum, tightening credit conditions, and deteriorating consumer sentiment, that have historically been key catalysts for turning slower economic growth into a proper recession. Instead, the structural tech super-cycle, renewed fiscal policy stimulus, modestly easing monetary policy, and the gradual de-escalation of global trade tensions appear to be significant tailwinds, sufficient to offset the weakness in other areas such as manufacturing, housing, trade and overall employment – for now. 
 
On the inflation front, upside risks remain, particularly in the US, where potential new tariffs could lift core inflation and revive concerns about stagflation. That said, recent global inflationary trends have been edging in the right direction. The sharp rise and subsequent decline in inflation has resulted from a unique series of shocks: widespread supply disruptions paired with strong post-pandemic demand, followed by commodity price spikes driven by the war in Ukraine. As supply chains normalised, tighter monetary policy began to curb demand and labour markets stabilised, inflation declined rapidly without triggering a major economic slowdown. Despite some bumps along the way, we expect this positive momentum to continue into 2026, with most G20 economies projected to reach central bank targets in the new year.  

The interaction between slower (yet positive) global growth and above-target (but easing) inflation will be pivotal in shaping monetary policy and market dynamics. Currently, we expect a gradual and steady shift toward policy easing, particularly from the US Federal Reserve, provided no major shocks occur, with decisions remaining data dependent.      
 
Beyond economic fundamentals and central bank policy, geopolitical risks remain a key consideration for investors. While it appears, that we have moved past peak conflict for now, ongoing structural tensions and trade disputes continue to fuel concerns over inflationary pressure and supply chain disruption.  

How are we positioning portfolios for the year ahead? 

Despite evident challenges and downside risks, we view the overall market backdrop as relatively constructive, with the leading economic and risk appetite indicators we look at suggesting positive alignment with the ‘recovery’ stage of the economic cycle. In this phase, we typically expect modest positive returns across risk assets in the medium-term. As a result, we are looking to selectively increase overall portfolio risk, thus favouring an overweight to equities relative to fixed income.      
 
Within equities, we hold a neutral stance between US and developed ex-US markets, however non-US markets are increasingly appealing, particularly for foreign investors. On one hand, US earnings momentum continues to outperform other markets, mostly driven by technology, favouring US equities. On the other hand, our bearish view on the dollar, driven by narrowing yield differentials for the greenback and positive surprises in global growth, is generally seen as a strong tailwind for international unhedged equity exposures.

In fixed income, we increase credit risk to a moderate overweight. However, given spreads near all-time lows, the case for risky credit is limited to harvesting higher yields relative to quality credit and government bonds in an environment of improving growth and stable inflation. We favour emerging market local debt exposure given our more bearish view on the US dollar. 

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