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Latest asset allocation views for Asia Q1 2026 | Manulife Investments

Posted:

ESG Investing: Environmental, Social, and Governance


Latest asset allocation views for Asia Q1 2026

10 March 2026

Summary:

  • Three key global themes for the first quarter: Liquidity and stimulus set the stage for 2026; AI remains a structural growth driver; Accelerating growth may favour diversification
  • We’ve shifted to neutral on developed international markets ex-North America. Improving US data suggests a less favourable growth differential versus the prior quarter.
  • Asia’s manufacturing recovery and the AI boom driving strength in Taiwan and South Korea, led us to upgrade Asia-Pacific ex-Japan equities to overweight.
  • Within Asia, we favour high yield over investment-grade credits given attractive relative valuations, wider spreads, and strong local demand, especially as rate cuts improve refinancing conditions and credit profiles.
     


Positioning for what’s next: late-cycle dynamics, AI opportunities and multipolar growth.
 

Liquidity and stimulus set the stage for 2026
  • We expect 2026 to improve steadily as the year progresses. Despite near-term uncertainty, stronger liquidity, fiscal stimulus, the lagged impact of easier monetary policy, and greater familiarity with the current U.S. administration should support economic growth and global risk assets.

  • Central banks are largely nearing the end of their policy cycles. The US Federal Reserve (Fed) may deliver a few measured cuts, while Canada and Europe remain on extended hold. The United Kingdom faces the challenge of balancing high inflation with weak growth, which will likely keep it from easing policy. Japan is likely to continue very gradual rate hikes as it normalises policy.
AI remains a structural growth driver
  • US equity markets remain supported by AI-driven momentum, led by large-cap tech. Heavy investment in data centers, semiconductors, and cloud infrastructure in both China and the United States fuels optimism, even as valuations stretch historical norms.

  • AI enablers such as infrastructure and hardware have been clear winners, while end-user adoption in software, healthcare, and other sectors are yet to deliver meaningful success. Elevated debt among AI-focused firms remains a concern.

  • AI remains a structural growth theme, and capital investment should broaden economic impact. Current dynamics favour exposure to proven AI beneficiaries, with balance from quality cyclicals and non-US opportunities to hedge valuation risk.
Accelerating growth may favour diversification
  • Global growth should pick up in 2026 driven by rate cuts and persistent fiscal support. Additionally, moderating inflation and supportive liquidity should favour risk assets. Policy divergence and equity concentration make regional and asset class diversification crucial.

  • International markets are gaining traction as Europe’s recovery strengthens and global diversification themes re-emerge. Rising flows into non-US regions reflect a shift toward broader exposure in a multipolar world, supported by improving growth, attractive valuations, and Europe’s defense spending.

  • Emerging markets (EM) have been a bright spot, with selective opportunities ahead. South Korea and Taiwan stand out on tech and policy support, while early signs point to a more constructive tactical view on China. US dollar weakness and global growth recovery are tailwinds, but geopolitical risks and earnings uncertainty call for caution.


     


Broad Asset Class Outlook2
 

RINV-113268-Viewpoint-Four-catalysts-for-continued-U-S--equity-market-strength-chart-1.jpg
 
  • Going into 2026, we remain modestly overweight equities versus fixed income. Corporate earnings remain resilient, and global growth is expected to hold steady, supported by fiscal spending, gradual rate cuts, and ongoing investment in productivity themes such as AI. Key risks include high valuations, inflation, and geopolitical uncertainty.

  • We remain underweight fixed income, favouring short duration exposures as elevated government debts and sticky inflation make long-end yields volatile. In credit, tight spreads and robust issuance leave little cushion for repricing.


     


Active Asset Allocation Views2
 

RINV-113268-Viewpoint-Four-catalysts-for-continued-U-S--equity-market-strength-chart-1.jpg

Broad Equity3

  • We remain overweight US equities, supported by resilient earnings, strong balance sheets, and rising AI investment for long-term growth. Recession risks appear low due to fiscal support and gradual Fed easing. We see opportunities in select sectors with structural growth trends, such as tech and communication services, despite high valuations and sticky inflation.

  • We’ve shifted to neutral on developed international markets ex-North America. Despite domestic cyclical resilience, improving US data suggests a less favourable growth differential versus the prior quarter. Valuations remain reasonable, while upside is capped by trade frictions.

  • We remain neutral on EM equities as valuations have normalised, and global trade momentum is slowing. Monetary easing and Asia’s manufacturing recovery provide near-term support, but a more constructive view would need clearer signs of an extended global cycle and a weaker US dollar.

Regional/Sector-specific Equity3

  • We’ve upgraded US small- and mid-caps to neutral. Earnings recovery is broadening beyond mega-cap tech. Easing Fed policy and deregulation could help. While higher financing costs and economic sensitivity remain challenges, these equities offer selective cyclical opportunities—even with limited AI exposure.

  • We’ve moved Europe ex-U.K. to neutral. Fiscal stimulus and accommodative policy support a solid macro backdrop, but technical momentum has weakened and earnings lag the United States. We continue to favour Spain and Italy, especially banks and value-oriented sectors.

  • We remain neutral on Japan equities, though they’re trending up. Stronger consumption, exports, and corporate profitability support the outlook, while some policy uncertainty, currency volatility, and rate normalization temper near-term optimism.

  • We’ve moved overweight Asia-Pacific ex-Japan equities, driven by Asia’s manufacturing recovery and the AI boom driving strength in Taiwan and South Korea.

  • We remain overweight commodities, favouring base metals like copper. We continue to favour gold as a long-term diversifier, while remaining cautious on oil due to expected supply buildup.


     


Active Asset Allocation Views2
 

RINV-113268-Viewpoint-Four-catalysts-for-continued-U-S--equity-market-strength-chart-1.jpg

Fixed Income3

  • We remain neutral on US investment-grade bonds, preferring mortgages over US Treasuries and credit due to limited prepayment risk.

  • We favour short and intermediate opportunities in the United States, as longer-term assets face structural headwinds.

  • We remain neutral on US high yield driven by broad economic momentum. However, we expect limited upside from further spread tightening and are monitoring if recent idiosyncratic issues will remain isolated or spread to the broader high yield space.

  • Within Asia, we favour high yield over investment-grade credits given attractive relative valuations, wider spreads, and strong local demand, especially as rate cuts improve refinancing conditions and credit profiles.

  • We remain overweight EM debt. While spreads are tight, similar to other credit-related asset classes, fundamentals are strong and improving.


     

Copper stands out amid supply constraints3

A supply-demand imbalance supports the metal’s outlook, even amid growth risks.

Commodities can help diversify and protect against inflation. Despite slower global growth, supply constraints and long-term trends, like electrification and renewable energy, keep the outlook positive. We favour base metals—especially copper and aluminum—alongside gold, as they're essential for the energy transition and infrastructure development.

Global copper supply remains tight due to mining disruptions and few new projects. In China—the world’s largest smelting hub—record low processing fees highlight a shortage of copper concentrate and intense competition among smelters. Recent policies aimed at curbing excess capacity could further restrict supply growth.

Copper demand is supported by China’s stimulus and focus on high-tech and green manufacturing, which will lift consumption, as well as growing global electrification and renewable energy projects. Emerging technologies like data centers and AI aid support. With demand expected to outpace supply into 2026, copper remains an attractive long-term opportunity.

Copper benefits from near-term tailwinds, including a weaker US dollar and targeted infrastructure and energy transition spending that's driving demand despite slowing global growth. However, risks remain: a sharper economic deceleration could hurt industrial activity, and renewed tariff uncertainty or trade tensions may disrupt supply and demand dynamics.
 

Copper treatment charges at record lows4

Driving upward pressure on copper prices
 

RINV-113268-Viewpoint-Four-catalysts-for-continued-U-S--equity-market-strength-chart-1.jpg




1. Source: Multi-Asset Solutions Team (MAST), 31 December, 2025. Projections or other forward-looking statements regarding future events, targets, management discipline or other expectations are only current as of the date indicated. There is no assurance that such events will occur, and if they were to occur, the result may be significantly different than that shown here. No forecasts are guaranteed. These views are updated on a quarterly basis. This commentary is provided for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. Diversification does not guarantee a profit or eliminate the risk of a loss.

2. Source: Multi-Asset Solutions Team (MAST), as of 31 December 2025. Projections or other forward-looking statements regarding future events, targets, management discipline or other expectations are only current as of the date indicated. There is no assurance that such events will occur, and if they were to occur, the result may be significantly different than that shown here. Information about asset allocation view is as of issue date and may vary. Active asset allocation views will be updated on a quarterly basis.

3. Source: Multi-Asset Solutions Team (MAST), as of 31 December 2025. Projections or other forward-looking statements regarding future events, targets, management discipline or other expectations are only current as of the date indicated. There is no assurance that such events will occur, and if they were to occur, the result may be significantly different than that shown here.

4. Source: Bloomberg, Macrobond, Manulife Investment Management, as of 26 November 2025. TC refers to treatment charge, a fee paid by miners to smelters for processing copper concentrate into refined copper. 25% indicates the copper content in the concentrate. CIF refers to Cost, Insurance, and Freight, specifying that the seller covers these costs to deliver the goods to a port.