Beyond Balance: The Next Regime

HONG KONG SAR - Media OutReach Newswire - 13 January 2026 - Today, KGI has released its 2026 Global Market Outlook, covering markets in the US, Mainland China, Hong Kong, Taiwan, and Singapore. After a turbulent year of trade disruptions and policy uncertainty under President Trump, investors face new questions. China has unveiled its 15th Five-Year Plan, as policymakers aim to support domestic growth amid global challenges. The market outlook for 2026 is shaped by interest rate decisions, economic resilience, and shifting international dynamics. Under this backdrop, we propose the "LEAD" strategy for 2026:

1. Liquidity Shift
2. Earnings Focused
3. Adding Credit
4. Diversified Assets

Cusson Leung, Chief Investment Officer at KGI, says: "Looking ahead to 2026, investors can adopt a LEAD strategy: L ​​stands for Liquidity Shift, benefiting from a weakening US dollar and interest rate cuts, with funds expected to flow to non-US dollar and Asian currencies; E stands for Earnings Focused, focusing on earnings growth to support valuations and allocating to US, European, and Japanese stocks; A stands for Adding Credit, locking in the credit of leading companies and increasing holdings of A-rated investment grade bonds; and D stands for Diversified Assets, responding to the upward trend in both stocks and bonds by including alternative assets to optimize asset allocation." Macro & US Markets The US economy will experience a more pronounced downturn in 4Q25, which will extend into 1H26, and this will have a negative impact on consumption, slowing investment activity. Nevertheless, AI-driven productivity gains should provide some support, with US GDP growth in 2026 forecast at 2.2%. The eurozone will see moderate growth, with Germany benefiting significantly from fiscal expansion and economic improvement. Japan's economy will strengthen on domestic demand, aided by additional fiscal stimulus. China has demonstrated resilience under trade protectionism in 2025. With inflation risks easing and labor market risks rising, the US Fed cut the interest rates in September 2025, with a total reduction of 75 bps in 2025, followed by an additional 50-75 bps in 2026. Regarding US stocks, AI-driven productivity gains and cost reductions should sustain solid profitability, with S&P 500 earnings projected to grow by 13.55% year-on-year (YoY) in 2026. However, higher risk premiums may cap valuation upside, leading us to project a year-end target of 7,650 points. Market performance will reflect risk-driven declines in 1Q26, stabilize and recover in 2Q26, and rally significantly around the midterm elections in 4Q26. By sector, among AI-related themes we favor technology, semiconductors, utilities (on higher power demand), machinery for advanced manufacturing, and industrial REITs. Non-AI beneficiaries include aerospace and defense (on higher military spending), pharmaceuticals (on tariff benefits), and capital market segments (supported by active investment banking). As for fixed income, US economic weakness and Fed rate cuts will drive Treasury yields lower, with 10-year yields expected to fall to 3.5-3.7% by 2Q26. We recommend allocating to US Treasuries or high-rated investment-grade corporate bonds in 1H26, then rotating into high-yield bonds in 2H26 as policy rates and economic conditions reach a bottom. James Chu, Chairman at KGI Securities Investment Advisory, says:"AI is triggering a new productivity revolution, supporting economic growth and strengthening corporate earnings. While the US economy is expected to slow, a recession remains unlikely, and the short-term impact of tariff policies should gradually fade by the first quarter of 2026. Although the Fed may shift from cutting rates at every meeting to cutting at alternating meetings, the overall environment remains a rate-cutting cycle. In a non-recession backdrop, lower interest rates should continue to support equity market performance." Mainland China and Hong Kong Markets In terms of the macroeconomy, with the conclusion of trade agreements among many countries, risks have subsided. However, due to external drag, China's GDP growth is expected to slow slightly to 4.6% in 2026. In 2026, investors should focus on four key areas for Hong Kong and mainland China markets: (1) In the consumption sector, domestic demand continued to be the core growth driver, contributing more than half of GDP. As the "trade-in" effect diminishes, the central government is expected to implement the "15th Five-Year Plan" and economic conference plans, launching a new round of subsidies covering culture, entertainment, and sports to continuously boost consumer spending. (2) In the financial market, risk appetite has increased. Given the narrowing spread between bond yields and...