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Our latest asset allocation views

January 2026

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Asset allocation views: paving the way for growth

Stronger liquidity, fiscal support drive a constructive outlook, while diversification remains key

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Key global themes

Positioning for what’s next: late-cycle dynamics, AI opportunities and multipolar growth.

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Liquidity and stimulus set the stage for 2026

We expect 2026 to improve steadily as the year progresses. Despite near-term uncertainty, stronger liquidity, fiscal stimulus, the lagged impact of easier monetary policy, and greater familiarity with the current U.S. administration should support economic growth and global risk assets.
Central banks are largely nearing the end of their policy cycles. The U.S. Federal Reserve (Fed) may deliver a few measured cuts, while Canada and Europe remain on extended hold. The United Kingdom faces the challenge of balancing high inflation with weak growth, which will likely keep it from easing policy. Japan is likely to continue very gradual rate hikes as it normalizes policy.

AI remains a structural growth driver

U.S. equity markets remain supported by AI-driven momentum, led by large-cap tech. Heavy investment in data centers, semiconductors, and cloud infrastructure in both China and the United States fuels optimism, even as valuations stretch historical norms.
AI enablers such as infrastructure and hardware have been clear winners, while end-user adoption in software, healthcare, and other sectors are yet to deliver meaningful success. Elevated debt among AI-focused firms remains a concern.
AI remains a structural growth theme, and capital investment should broaden economic impact. Current dynamics favor exposure to proven AI beneficiaries, with balance from quality cyclicals and non-U.S. opportunities to hedge valuation risk.

Accelerating growth may favor diversification

Global growth should pick up in 2026 driven by rate cuts and persistent fiscal support. Additionally, moderating inflation and supportive liquidity should favor risk assets. Policy divergence and equity concentration make regional and asset class diversification crucial.
International markets are gaining traction as Europe’s recovery strengthens and global diversification themes re-emerge. Rising flows into non-U.S. regions reflect a shift toward broader exposure in a multipolar world, supported by improving growth, attractive valuations, and Europe’s defense spending.
Emerging markets (EM) have been a bright spot, with selective opportunities ahead. South Korea and Taiwan stand out on tech and policy support, while early signs point to a more constructive tactical view on China. U.S. dollar weakness and global growth recovery are tailwinds, but geopolitical risks and earnings uncertainty call for caution.

Source: Manulife Investment Management, December 31, 2025. These views are updated on a quarterly basis. This commentary is provided for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. Diversification does not guarantee a profit or eliminate the risk of a loss. No forecasts are guaranteed.

Active asset allocation views

Asset class overview Broad equity Regional/sector-specific equity Fixed income Private markets

Asset class overview

Going into 2026, we remain modestly overweight equities versus fixed income. Corporate earnings remain resilient, and global growth is expected to hold steady, supported by fiscal spending, gradual rate cuts, and ongoing investment in productivity themes such as AI. Key risks include high valuations, inflation, and geopolitical uncertainty.
We remain underweight fixed income, favoring short duration exposures as elevated government debts and sticky inflation make long-end yields volatile. In credit, tight spreads and robust issuance leave little cushion for repricing.

Broad equity

We remain overweight U.S. equities, supported by resilient earnings, strong balance sheets, and rising AI investment for long-term growth. Recession risks appear low due to fiscal support and gradual Fed easing. We see opportunities in select sectors with structural growth trends, such as tech and communication services, despite high valuations and sticky inflation.
We’ve shifted to neutral on developed international markets ex-North America. Despite domestic cyclical resilience, improving U.S. data suggests a less favorable growth differential versus the prior quarter. Valuations remain reasonable, while upside is capped by trade frictions.
We remain neutral on EM equities as valuations have normalized, and global trade momentum is slowing. Monetary easing and Asia’s manufacturing recovery provide near-term support, but a more constructive view would need clearer signs of an extended global cycle and a weaker U.S. dollar.

As of December 31, 2025, Manulife Investment Management’s Multi-Asset Solutions Team remains overweight in U.S. equities and neutral on Canada and emerging markets. The team has moved to neutral on developed international markets ex-North America. — Source: Multi-Asset Solutions Team, Manulife Investment Management, as of December 31, 2025. NA refers to North America.

Regional/sector-specific equity

We’ve upgraded U.S. small- and mid-caps to neutral. Earnings recovery is broadening beyond mega-cap tech. Easing Fed policy and deregulation could help. While higher financing costs and economic sensitivity remain challenges, these equities offer selective cyclical opportunities—even with limited AI exposure.
We’ve moved Europe ex-U.K. to neutral. Fiscal stimulus and accommodative policy support a solid macro backdrop, but technical momentum has weakened and earnings lag the United States. We continue to favor Spain and Italy, especially banks and value-oriented sectors.
We remain neutral on Japan equities, though they’re trending up. Stronger consumption, exports, and corporate profitability support the outlook, while some policy uncertainty, currency volatility, and rate normalization temper near-term optimism.
We’ve moved overweight Asia-Pacific ex-Japanese equities, driven by Asia’s manufacturing recovery and the AI boom driving strength in Taiwan and South Korea.
We remain overweight commodities, favoring base metals like copper. We continue to favor gold as a long-term diversifier, while remaining cautious on oil due to expected supply buildup.

Taking a regional and sector-specific view, as of December 31, 2025, Manulife Investment Management’s Multi-Asset Solutions Team is neutral on U.S. small and mid-cap, U.K., Europe ex-U.K., Japanese, Emerging Latin America, Mainland China, Hong Kong and Infrastructure equities. The team is underweight Real Estate Investment Trusts and overweight Asia-Pacific ex-Japan equities and commodities. — Source: Multi-Asset Solutions Team, Manulife Investment Management, as of December 31, 2025.

Fixed income

We remain neutral on U.S. investment-grade bonds, preferring mortgages over U.S. Treasuries and credit due to limited prepayment risk.
We favor short and intermediate opportunities in the United States, as longer-term assets face structural headwinds.
We’ve moved underweight leveraged loans. Expected risk from higher default rate expectations, covenant-lite loan structures, and lower recovery rates aren’t offset by current spreads.
We remain neutral on U.S. high yield driven by broad economic momentum. However, we expect limited upside from further spread tightening and are monitoring if recent idiosyncratic issues will remain isolated or spread to the broader high yield space.
Within Asia, we favor high yield over investment-grade credits given attractive relative valuations, wider spreads, and strong local demand, especially as rate cuts improve refinancing conditions and credit profiles.
We remain overweight EM debt. While spreads are tight, similar to other credit-related asset classes, fundamentals are strong and improving.

Private markets

We remain optimistic about global infrastructure as strong secular trends, including digitization and decarbonization, require significant amounts of long-term capital investment and showcase resilience through market cycles.
Private credit remains attractive as banks continue to restrict lending. While competition in the space is increasing, the ability to secure higher yields in a still-restrictive credit environment remains compelling. Despite a recent decline in Secured Overnight Financing Rates, all-in yields remain in double digits.
We’re underweight private equity due to elevated valuations, extended holding periods, tighter exit conditions, and diminished benefits from leverage. The industry’s scale and slower turnover challenge its ability to sustain historical return assumptions.

Asset class focus

Copper stands out amid supply constraints

A supply-demand imbalance supports the metal’s outlook, even amid growth risks.

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Commodities can help diversify and protect against inflation. Despite slower global growth, supply constraints and long-term trends, like electrification and renewable energy, keep the outlook positive. We favor base metals—especially copper and aluminum—alongside gold, as they're essential for energy transition and infrastructure development.

Global copper supply remains tight due to mining disruptions and few new projects. In China—the world’s largest smelting hub—record low processing fees highlight a shortage of copper concentrate and intense competition among smelters. Recent policies aimed at curbing excess capacity could further restrict supply growth.

Copper demand is supported by China’s stimulus and focus on high-tech and green manufacturing, which will lift consumption, as well as growing global electrification and renewable energy projects. Emerging technologies like data centers and AI aid support. With demand expected to outpace supply into 2026, copper remains an attractive long-term opportunity.

Copper benefits from near-term tailwinds, including a weaker U.S. dollar and targeted infrastructure and energy transition spending that's driving demand despite slowing global growth. However, risks remain: a sharper economic deceleration could hurt industrial activity, and renewed tariff uncertainty or trade tensions may disrupt supply and demand dynamics.

Copper treatment charges at record lows

Driving upward pressure on copper prices

The chart illustrates the trend of China Copper Concentrate treatment charges from 2010 to 2025, highlighting the record low of -46.5 as of November 26, 2025. The treatment charge is a fee paid by miners to smelters for processing copper concentrate into refined copper. The record-low treatment charges are contributing to upward pressure on copper prices. — Source: Bloomberg, Macrobond, Manulife Investment Management, as of 11/26/2025. TC refers to treatment charge, a fee paid by miners to smelters for processing copper concentrate into refined copper. 25% indicates the copper content in the concentrate. CIF refers to Cost, Insurance, and Freight, specifying that the seller covers these costs to deliver the goods to a port.

Asset class returns

Asset class returns comprise the Multi-Asset Solutions Team’s expectations of how different asset classes may perform over a 5-year and long-term (20-year-plus) time horizon.

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Expected returns

^{Source: Multi-Asset Solutions Team, Manulife Investment Management, as of September 30, 2025. Not all asset classes with forecasts are represented in every portfolio managed by the Multi-Asset Solutions Team. Data shown in the tables reflects the most recent data available. Asset class forecasts comprise inputs driven by proprietary Manulife Investment Management research and are not meant as predictions for any particular index, mutual fund, or investment vehicle. To initiate the investment process, the investment team formulates 5-year and 20-year plus risk/return expectations, developed through a variety of quantitative modeling techniques and complemented with qualitative and fundamental insight. Assumptions are then adjusted for a number of factors. This chart contains forecasts reflecting potential future events and is only as current as of the date indicated. There is no assurance that such events will occur, and the actual asset class return may be significantly different than that shown here. This material should not be viewed as a recommendation or a solicitation of an offer to buy or sell any investment products or to adopt any investment strategy. It is not possible to invest directly into an index. Past performance does not guarantee future results. No forecasts are guaranteed.}

Multi-Asset Solutions Team

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Nathan W. Thooft, CFA

CIO, Multi-Asset Solutions Team, Global Equities

Robert E. Sykes, CFA

Senior Portfolio Manager, Head of Asset Allocation, U.S., Multi-Asset Solutions Team

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James Robertson, CIM

Senior Portfolio Manager, Head of Multi-Asset Solutions, Canada, Head of Tactical Asset Allocation, Multi-Asset Solutions Team

Luke Browne

Senior Portfolio Manager, Global Head, Multi-Asset Solutions Team, Head of Multi-Asset Solutions, Asia

Geoffrey Kelley, CFA

Senior Portfolio Manager, Global Head, Systematic Equity Solutions, Multi-Asset Solutions Team

Benjamin W. Forssell, CFA

Client Portfolio Manager, Global Multi-Asset Team, Multi-Asset Solutions Team

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Eric Menzer, CFA, CAIA, AIF

Head of Advisory Solutions, Senior Portfolio Manager, Multi-Asset Solutions Team

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Important disclosures

Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person.

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Manulife WAM shall not assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained here. This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Manulife WAM to any person to buy or sell any security or adopt any investment approach, and is no indication of trading intent in any fund or account managed by Manulife WAM. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation doesn’t guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Manulife WAM. Past performance does not guarantee future results.

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© 2026 by Manulife Wealth and Asset Management. All rights reserved. The statements and opinions expressed in this article are those of the author. Manulife WAM cannot guarantee the accuracy or completeness of any statements or data.

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