How do higher interest rates affect markets?

• Developed market central banks, including the U.S. Federal Reserve, have been raising interest rates in response to rising inflation and robust growth momentum. The futures market are indicating more rate hikes to come in the months ahead, however, the magnitude of rate increases should be manageable. Meanwhile bond yields are driven a multiple factors, including firm growth momentum, questions over fiscal sustainability and long term inflation outlook. (GTMA P.20, 28, 62)
• Investors should be ready to live with a higher rate environment in the next 6-12 months. This does not need to be negative for stocks or other risk assets since part of the policy tightening is driven by strong economic growth, which should facilitate consistent earnings performance. (GTMA P.17, 32, 89)

What are the risks and opportunities in AI?

• Artificial intelligence (AI) models continue to benefit from AI adoption by both consumers and enterprise users. This should support capex and AI investment through the expansion of demand for compute power, which in turn, laid a foundation for data center construction and demand for semiconductors and memory chips. (GTMA P.51, 53)
• Public opposition in data center construction and other AI infrastructure in the U.S. and worries over AI safety could introduce some policy risk in the near term. This could be partly addressed by building data centers outside of the U.S., as well as putting more safeguards around model development.
• AI investing remains a long term growth theme. Investors can also expand their allocation towards hardware that makes use of AI models, such as robotics, and sectors that are early beneficiaries of the efficiency gain from AI. (GTMA P.54)

Where can investors find income opportunities?

• Following extraordinary returns from AI related equities in the first three quarters of 2026, similar performance would be hard to replicate even as we are constructive on global equities. This implies the consistency of cash flow and income investing should be back on investors’ radar. (GTMA P.67, 57)
• Fixed income, including government bonds, corporate debt and emerging market fixed income, have seen higher bond yields since the start of the year. This reflects market expectations of higher inflation and tighter monetary policy. Despite the recent drop in bond prices due to these factors, higher yields today provide these bonds with a greater buffer against capital loss if interest rates rise further. (GTMA P.58)
• Alternative assets, such as private credit, infrastructure and real estates, generate stable income with low correlated with risk assets. This provide portfolio diversification benefits while provide consistent income stream. (GTMA P.75, 78)

How should investors allocate their money?

• Steady economic and earnings growth continues to underpin global equities, even though we see opportunities to broaden beyond technology into sectors such as financials and industrials. There are also selective stock opportunities in Europe and Japan that can take advantage of this global expansion.  (GTMA P.31, 43, 49, 50)
• Rising bond yields in recent months have made fixed income attractive once again. We see the markets have already fully priced in policy rate hikes in coming months, which is positive for short duration government bonds. Steady global expansion helps to contain default rate, and provide a supportive backdrop to high yield corporate debt and emerging market fixed income.  (GTMA P.59, 64, 65)
• Institutional and high net worth investors are actively building the portfolio around alternative assets for income generation and portfolio diversification. Recent mega-IPOs in the U.S. reinforces the fact shareholder value creation often takes place when the company is private. We see the fundamentals of private credit to be resilient, which can be further reinforced by active selection. (GTMA P.76)