Middle East Investment Directions 2026 - Adapting to uncertainty

The big idea

While cross-asset volatility has increased, we look to capture tactical dislocations in equities, selectively. With dispersion increasing across regions and sectors, we highlight the need for an active approach to capture structual winners.

Positioning portfolios

We maintain exposure to equities, with a focus on the US market given earnings strength and quality versus global peers. Active strategies – including fundamental and systematic – can help capture dispersion, while buffer strategies can help improve downside protection.

In emerging markets, dispersion calls for selectivity. We lean into Brazil for commodity exposure and Mexico for its attractive valuations, alongside parts of Asia given improving fundamentals and AI-related tailwinds.

The big idea

Income is the primary driver of fixed income returns, while duration has become a less reliable. As a result, investors are increasingly focused on building diversified, high-quality income streams.

Positioning portfolios

We pursue a multi-asset approach to income – anchored in high-quality fixed income, complemented by selective allocations to high yield and CLOs.

Asian credit potentially offers compelling diversification benefits given increasingly negative correlations with US core bonds. We also see equities as a growing source of income, with dividends contributing materially to total returns.

The big idea

Amid increased geopolitical risk and uncertainty around economic, monetary and fiscal policy, traditional diversifiers have been challenged. Government bonds are now a source of volatility, in our view, reinforcing the need to build resilience across a broader set of return drivers.

Positioning portfolios

We continue to see a role for gold in portfolios, as it remains our main hedge for geopolitical risk, and see merit in building liquidity buffers with cash or cash-like exposures.

We see potential opportunities in energy equities given valuations; despite recent increases, the sector remains among the cheapest across the US and Europe on a forward price-to-earnings basis. Liquid alternatives such as listed infrastructure, can also offer exposure to the sector.

On the other hand, the demand for private markets continues, as investors seek diversification beyond the traditional traditional asset allocation frameworks. We look to macro and systematic hedge funds, which can help reduce market beta and capture dislocations.