AI remains the critical theme in 2026 but will likely suffer from some ‘AI-titude sickness’. We tactically rebalance out of crowded US IT Mega-Caps and would look to ‘buy-the-dip' in US IT only on sizeable technical corrections. While we believe in AI as a 'game changer', the M7 cohort is currently 'priced for perfection' with an extremely high 2026 EPS bar. AI capex commitments will put pressure on their margins.
The 'Secular Bull' remains in place. Structural scarcity and ample liquidity are critical catalysts to offset rich valuations. We start 2026 with a tactical preference for Europe over the US based on valuations and improving macro fundamentals (Germany’s ‘fiscal awakening’) —offering la cushion if AI loses steam. EMs are our key region preference, particularly China – ‘policy-support’ trade – and Mexico.
Sector-wise, we are overweight Global Health Care, Staples, and Utilities, trading below historical averages. This is backed by our proprietary Quantitative Edge model and supported by AI-winning themes (e.g., Electricity Grids, AI Diagnostics).