Taking some chips off the table – Counterpoint November 2026

A good outlook does not mean taking every risk

There is still plenty to like about the medium-term investment outlook. The global economy is growing despite rising energy prices, higher interest rates and political uncertainty. Corporate profits are also growing, supported by the significant investment in building the infrastructure behind AI.

This is why we still have a positive view on equities. It’s also why we don’t believe we’re in an AI bubble. Demand for computing power, cloud infrastructure and advanced semiconductors is generating revenues and earnings across the technology supply chain. Over time, we believe the potential productivity benefits can extend well beyond the technology sector.

However, as the sums involved become larger, the economics deserve closer attention. Questions are increasingly being asked about how AI projects are financed, whether future revenues can justify the money being committed and what returns they can ultimately generate.

We also expect the extraordinary pace of AI spending growth to ease. As the investment base grows, maintaining the same rate of expansion requires ever larger amounts of capital. Our central scenario is therefore for spending to continue rising, but at a slower pace.

Spending can therefore grow more slowly without signalling the end of the AI investment cycle. We continue to see AI as a powerful long-term investment theme, even as the economics of individual projects and companies come under greater scrutiny. The longer-term outlook remains supportive, but the risks over the coming months have increased.

Why we are taking profits in emerging markets

Our overweight position in emerging market equities has performed well. Improving earnings, strong Asian markets and exposure to the global technology cycle have all helped.

We are now taking some profits and returning to a neutral position. But we are not walking away from emerging markets.

We still see attractive long-term opportunities, particularly in Asian technology companies and the semiconductor supply chain. We also remain positive on the longer-term AI investment cycle. However, there are two reasons why we think the near-term balance between risk and potential return has become less attractive.

Firstly, technology makes up a large part of the emerging market equity universe. That exposure has supported performance as AI investment has grown, while giving investors another way to participate in the theme beyond the large US technology companies. But it also means US and Asian technology markets are increasingly exposed to the same questions from investors about AI spending and the returns it can ultimately generate.

Secondly, many of the Asian markets we invest in are particularly exposed to higher oil prices. The largest Asian emerging markets are oil importers, making them vulnerable to a further rise in prices if tensions in the Middle East escalate. If that were accompanied by a stronger US dollar or investors pulling money out of emerging markets, the pressure could become more pronounced.

Being positive about emerging markets over several years does not mean maintaining an overweight position at every point in the cycle. For now, we believe a neutral allocation is more appropriate.

Adding to US Treasuries while staying selectively constructive

We are reallocating the proceeds into US Treasuries, hedged into local currency to remove the impact of exchange-rate movements. This builds on our recent decision to reduce European government bonds and increase exposure to US Treasuries.

The aim is to improve portfolio resilience and capture yield. US Treasuries can help diversify our equity exposure and may perform well if growth slows, geopolitical tensions rise or equity markets become more volatile. They could also benefit if the US midterm elections result in a more divided government, making further increases in government spending less likely.

Treasuries don’t protect portfolios in every scenario. A further oil shock, for example, could push inflation expectations and bond yields higher, reducing their defensive qualities. Even so, we believe they provide a useful counterweight to some of the risks we currently see.

None of these changes alters our constructive medium-term outlook. They reflect a judgement that, after a period of strong returns, some of the risks have become less attractive to take today.

For us, this argues for taking some chips off the table: realising gains where markets have rewarded us, retaining exposure to the opportunities we continue to believe in and adding some resilience if the months ahead prove less straightforward.