ASIA BUSINESS OUTLOOK19FEBRUARYenabling technologies, indicating that the buildout is no longer confined to a small group of US mega-cap firms. Adoption in Asian emerging markets is particularly noteworthy, with local corporations integrating AI tools into manufacturing, logistics, and consumer platforms. This broadening of participation could support emerging market opportunities and reduce reliance on a narrow set of US stocks to power index returns.Fixed Income and Credit MarketsFixed income remains a source of income and diversification, but the rate path requires deliberation. The US 10-year Treasury yield is likely to decline through mid-2026 as the Fed completes its rate-cutting cycle, followed by a moderate rise into year-end. Duration management will matter more than it has over the past two years.Credit markets show uneven conditions. High-yield debt stands to outperform investment-grade bonds because it is less exposed to the significant increase in AI-driven issuance that investment-grade borrowers will tap to fund infrastructure needs. Expectations for M&A activity also strengthen the case for selective credit exposure. Deal volumes are projected to rise 32 percent in 2025 and another 20 percent in 2026. Sectors benefiting from deregulation and favorable financing conditions may offer attractive opportunities for credit investors who can assess capital structures with precision, strengthening the relevance for best investment strategies in a shifting environment.Private Markets and Portfolio ConstructionPrivate markets now serve as core components of diversified portfolios. Private credit and infrastructure remain pivotal in financing deglobalization, decarbonization, and digitalization, areas where traditional public markets often lag. Manager selection and disciplined underwriting are essential, especially as spreads remain tight and competition intensifies for high-quality assets.Valuation risk is the central challenge. US public markets carry elevated multiples, and many portfolios remain heavily concentrated in a small group of stocks. Opportunities appear more compelling across Europe, where valuations are supported by stabilizing inflation and policy alignment, and in parts of Asia where currency trends and technology adoption strengthen the investment case. These trends address the increasing importance of portfolio diversification strategies and sustainable investing insights for long-term wealth creation.Investors face a choice in 2026. They can stay concentrated in expensive US assets and hope momentum continues, or build diversified positions across regions and asset classes where expectations are low, valuations are reasonable, and the gap between price and fundamentals creates actual opportunity for returns.
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