In a significant shift, global fund managers are placing their biggest bets on equities since late 2024, moving away from the safe-haven assets that dominated 2025. This renewed optimism for 2026 hinges on the momentum of artificial intelligence (AI), global interest rate trends, and the expectation of stronger corporate profits.
From Safe Havens to Equity Optimism
The year 2025 was dominated by gold and silver, which delivered staggering returns of 85% and 165% respectively on the Multi Commodity Exchange, massively outperforming global stocks. This flight to safety was fueled by trade wars and geopolitical tensions. In contrast, the MSCI World Index gained a more modest around 21%.
However, the tide appears to be turning. The latest Bank of America Securities survey reveals that global fund managers' equity allocation surged to a net 42% overweight in December—the highest level since December 2024. This bullish stance is rooted in expectations of global growth and corporate profits reaching their highest levels since 2021, supported by anticipated easing of interest rates worldwide.
AI: The Driving Force and the Proof-It Year
The narrative for 2026 will be heavily influenced by artificial intelligence. UBS expects global equities to rise by around 15% by the end of 2026, driven by US tech and equities, with contributions from healthcare, utilities, banking, and markets in Europe, Japan, China, and emerging economies. The firm forecasts S&P 500 earnings per share (EPS) to grow 11% in 2025 and 10% in 2026.
However, analysts at Nomura Global Markets Research caution that 2026 will be a pivotal "prove-it" year for AI. Investors will demand concrete evidence that massive AI investments are translating into real productivity gains and improved returns. This assessment will determine if high spending levels can be sustained and whether the performance gap between Asia's AI leaders like Korea and parts of Hong Kong/China, and laggards like India and ASEAN markets, will continue.
India's Lagging Performance and Recovery Path
While emerging markets typically benefit from a weak US dollar, India, a usual favourite in Asia, severely underperformed in 2025. The MSCI India index rose only 8%, compared to nearly 30% gains each for the MSCI Asia ex-Japan and MSCI Emerging Markets indices. This was due to lacklustre earnings, stretched valuations at the year's start, and persistent selling by foreign institutional investors (FIIs).
To stimulate growth, a series of measures were implemented, including interest rate cuts by the Reserve Bank of India (RBI), income tax reductions, and GST rate rationalisation. These are expected to propel an earnings recovery in 2026. Progress on US-India trade talks is also seen as a potential positive catalyst.
Despite the underperformance, India remains a 'growth play' with forward P/E of 25x, while China is considered the 'value play' at 15x. Standard Chartered believes India's earnings downgrade cycle has bottomed out, expecting Indian companies to deliver 12-month forward EPS growth of 15.5%, versus 10.5% for Chinese companies. Fund managers in the BofA survey were mildly overweight on India in December, viewing it as a potential diversification play against AI-centric markets, though competition from cheaper Chinese equities remains.
