Asset allocation views: evolving global growth and regional dynamics
Recent shifts in global policy and varied economic growth across regions are prompting a fresh look at asset allocation. As these factors uncover a broader set of opportunities globally, we look at the highlights of our latest asset allocation outlook.
Following a stretch of persistent volatility triggered by tariffs and monetary policy uncertainty, we’re likely moving toward a period of subdued global economic growth. While we might see an improvement in momentum in 2026, the current environment calls for identifying pockets of emerging opportunities across regions.
U.S. tech leads, but opportunities broaden
U.S. equities have seen a strong rally since April, led by large-cap technology firms, more specifically due to the momentum in AI companies. However, the market rally has raised questions around inflated valuations and concerns about whether this trend may flip anytime soon. Despite these worries, investor confidence in the long-term growth story of AI-linked companies remains strong, driven by steady underlying fundamentals such as high return on invested capital.
In our view, these dynamics favor maintaining exposure to U.S. tech-related stocks, particularly those linked to advancements in AI and innovation-driven business models.
S&P 500 Index: top-performing sectors vs. the index
Year-to-date returns (%)
Looking beyond the United States, we see opportunity in Europe where the growth gap with the United States is narrowing. Attractive valuations, encouraging macroeconomic trends, and supportive policy measures are drawing attention, even as structural challenges and trade tensions linger.
These developments have influenced two changes in our views—we’ve moved overweight developed international markets ex-North America, shaped by improved prospects in Europe, and we’ve also upgraded Europe ex-U.K. equities to a modest overweight.
In Asia, manufacturing and tech-export economies such as South Korea, Singapore, and Taiwan remain attractive.
Equities vs. fixed income
We maintain a modest overweight in equities versus fixed income for the coming year. Resilient corporate earnings and improving sentiment help offset the drag from slowing growth and labor market softness; however, inflation and elevated valuations remain notable headwinds.
Within equities, we favor U.S. sectors like communication services, technology, utilities, and industrials. European equities, especially those in Spain and Italy, are also preferred, with a tilt toward banks, industrials, and value-oriented names. The outlook for emerging-market equities remains neutral, even as consistent policy and improved trade dynamics offer some support.
Fixed-income allocations remain underweight, with a preference for selective opportunities in markets benefiting from supportive fiscal and monetary policies.
For more details, read the latest asset allocation views from the Multi-Asset Solutions Team at Manulife Investment Management.
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Important disclosures
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