Eastspring Investments
Jan 2026 | 5 min read
Summary
Growth in the United States and some parts of Asia are expected to be supported by stimulus and AI-related spending in the first half of 2026. Markets still expect the US Federal Reserve to cut rates by 50 bps this year, but confidence in this magnitude and particularly timing has fallen. Meanwhile, Asia is close to the end of its easing cycle with only limited rate cuts from a handful of countries expected in 2026. Eastspring’s Multi-Asset Portfolio Solutions (MAPS) team continues to hold a broadly positive view on risk assets in the near term, as the economic data remains supportive for now. Asia and Emerging Market (EM) equities appear well positioned while EM debt offers attractive carry and should benefit from investor demand for higher-yielding hard currency debt.
Macro: Growth to be supported by stimulus and AI-related spending
The ongoing boom in US Artificial Intelligence (AI) infrastructure spending led to US growth surprising powerfully to the upside in the second half of last year. Consensus expectations for at least a 30% growth in AI spending this year, combined with a large fiscal boost from the One Big Beautiful Bill Act’s tax cuts in the first of 2026 plus the lagged impact of Fed rate cuts point to US GDP growth of 2% or just above this in 2026. The slowing in US job creation is the main risk to this positive US growth outlook, but we see an increasing chance that sustained economic growth will drive a bounce in US employment.
In Asia, exporting chips as a result of the US AI boom is likely to drive GDP growth of 2.0% in Korea and 3.4% in Taiwan. Malaysia also benefits from the AI theme both through exports and through double digit growth in construction, thanks to its build out of data centers. We expect GDP growth of 4.5%.
In contrast to the US, China’s GDP growth slowed from over 5% in the first half of 2025 to 4.5% in the fourth quarter with weakening momentum in consumption and investment. However, we forecast 4.8% GDP growth for 2026, driven by government stimulus. The first wave of this stimulus began with increases in relending quotas and cuts to lending rates for targeted loans by the People's Bank of China (PBOC) on January 15. We expect the PBOC to ease further via a policy rate and reserve ratio cut likely in the second quarter. Most importantly, we expect the government to announce new fiscal stimulus in March, largely targeting infrastructure spending and investment in key “new economy” sectors.
Japan’s economy ended last year with rising indicators of corporate capex growth and an outlook for a bounce in exports this quarter. If Prime Minister Takaichi gains seats in Japan’s parliament in the upcoming snap election, she is likely to be able to push through larger fiscal stimulus. Similar to China, the stimulus measures will probably focus on strategic industries as well as military spending. We expect Japan’s real GDP to grow close to 1.0% this year.
GDP in Asia’s other large economy, India, is likely to grow 6.6% this year. Last year’s interest rate cuts appear to be boosting credit growth and, with this, a recovery in urban car sales. We expect a broader recovery in consumer durables and perhaps property in the coming quarters. We also continue to expect India to reach a trade deal with the US that lowers its tariffs and facilitates a further recovery in exports.
Asset Allocation: Positive on equities but diversifying away from pricey US equities
Markets defied expectations in 2025 as they climbed to record highs amid volatility. We continue to hold a broadly constructive view on risk assets over the near-term, tactical investment horizon (i.e., 3-month), as the economic data remain supportive for now, and anticipated Fed rate cuts should help to counter some of the expected US GDP growth moderation in 2026.
Notably, non-US equities outperformed US equities in 2025. Asia and Emerging Markets (EMs) appear well positioned in 2026, supported by fiscal and monetary stimulus, as well as policy favouring a weaker US dollar. We continue to view equities favourably over the tactical horizon. However, we favour allocating more to undervalued equity markets that provide diversification to higher-priced US equities.
For US credits, spreads look tight, but valuations appear better on a yield basis. We believe investors will continue to add US fixed income exposure given attractive all-in yields, albeit at a slower pace than in recent years. Emerging markets (EM) sovereign debt had one of the strongest performances among global fixed income sectors in 2025. We believe EM debt offers attractive carry and can continue to benefit from global interest-rate dynamics, a weakening US dollar, and strong investor demand for higher-yielding hard-currency assets.
This is an extract from our Q1 2026 Market Outlook. Click here to download the full report which includes a special feature “Look to Asian bonds for income and diversification”
The information and views expressed herein do not constitute an offer or solicitation to deal in shares of any securities or financial instruments and it is not intended for distribution or use by anyone or entity located in any jurisdiction where such distribution would be unlawful or prohibited. The information does not constitute investment advice or an offer to provide investment advisory or investment management service or the solicitation of an offer to provide investment advisory or investment management services in any jurisdiction in which an offer or solicitation would be unlawful under the securities laws of that jurisdiction.
Past performance and the predictions, projections, or forecasts on the economy, securities markets or the economic trends of the markets are not necessarily indicative of the future or likely performance of Eastspring Investments or any of the strategies managed by Eastspring Investments. An investment is subject to investment risks, including the possible loss of the principal amount invested. Where an investment is denominated in another currency, exchange rates may have an adverse effect on the value price or income of that investment. Furthermore, exposure to a single country market, specific portfolio composition or management techniques may potentially increase volatility.
Any securities mentioned are included for illustration purposes only. It should not be considered a recommendation to purchase or sell such securities. There is no assurance that any security discussed herein will remain in the portfolio at the time you receive this document or that security sold has not been repurchased.
The information provided herein is believed to be reliable at time of publication and based on matters as they exist as of the date of preparation of this report and not as of any future date. Eastspring Investments undertakes no (and disclaims any) obligation to update, modify or amend this document or to otherwise notify you in the event that any matter stated in the materials, or any opinion, projection, forecast or estimate set forth in the document, changes or subsequently becomes inaccurate. Eastspring Investments personnel may develop views and opinions that are not stated in the materials or that are contrary to the views and opinions stated in the materials at any time and from time to time as the result of a negative factor that comes to its attention in respect to an investment or for any other reason or for no reason. Eastspring Investments shall not and shall have no duty to notify you of any such views and opinions. This document is solely for information and does not have any regard to the specific investment objectives, financial or tax situation and the particular needs of any specific person who may receive this document.
Eastspring Investments Inc. (Eastspring US) primary activity is to provide certain marketing, sales servicing, and client support in the US on behalf of Eastspring Investment (Singapore) Limited (“Eastspring Singapore”). Eastspring Singapore is an affiliated investment management entity that is domiciled and registered under, among other regulatory bodies, the Monetary Authority of Singapore (MAS). Eastspring Singapore and Eastspring US are both registered with the US Securities and Exchange Commission as a registered investment adviser. Registration as an adviser does not imply a level of skill or training. Eastspring US seeks to identify and introduce to Eastspring Singapore potential institutional client prospects. Such prospects, once introduced, would contract directly with Eastspring Singapore for any investment management or advisory services. Additional information about Eastspring Singapore and Eastspring US is also is available on the SEC’s website at www.adviserinfo.sec. gov.
Certain information contained herein constitutes "forward-looking statements", which can be identified by the use of forward-looking terminology such as "may", "will", "should", "expect", "anticipate", "project", "estimate", "intend", "continue" or "believe" or the negatives thereof, other variations thereof or comparable terminology. Such information is based on expectations, estimates and projections (and assumptions underlying such information) and cannot be relied upon as a guarantee of future performance. Due to various risks and uncertainties, actual events or results, or the actual performance of any fund may differ materially from those reflected or contemplated in such forward-looking statements.
Eastspring Investments companies (excluding JV companies) are ultimately wholly-owned / indirect subsidiaries / associate of Prudential plc of the United Kingdom. Eastspring Investments companies (including JV’s) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America.