Market insights and portfolio ideas

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Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Financial markets have been relatively volatile so far this year, largely due to geopolitical events.

The situation in the Middle East has prompted investor concerns about whether energy-driven inflation could alter the global economic outlook. At the same time, AI developments are also in focus. Investors are assessing two key AI-related risks: whether industries like software can protect their revenues as AI becomes more powerful and widely available, and whether heavy AI investment will translate into lasting profits, placing pressure on firms exposed to the AI buildout – such as hyperscalers (Hyperscalers are large-scale providers of cloud computing services, ranging from digital infrastructure to data processing and storage).

In this environment, we’re focusing on portfolio resilience by positioning investments that provide reliable income streams. That’s why our first theme focuses on UK dividend stocks, which pay regular dividends, while allowing investors to still benefit if share prices rise. UK dividend stocks also tilt towards sectors that we like, such as financials, and in our view, offer relatively attractive dividend payments. For investors, this level of income can help smooth returns when markets are volatile.

Secondly, we continue to see potential selective opportunities in emerging markets, with India standing out. While the country may face near-term headwinds as an energy importer amid volatile energy prices, in our view, India still represents a potential portfolio diversifier. It has historically shown low correlation with developed markets stocks – meaning that they don’t always move in the same direction – and over the long term, we see supportive tailwinds for the country. Economic growth and profitability are being driven by increasing digitalisation, population growth and resilient domestic investor participation. At the same time, valuations – or stock prices relative to company earnings – have become more reasonable compared with recent years, suggesting an attractive entry point for longer-term investors.

Lastly, we favour gold as a potential diversifier against geopolitical risk, as headlines continue to drive market swings. In our view, persistent demand from central banks, complemented by strong buying from both professional and retail investors, provides longer-term support for gold prices.

See our latest report, Turning views into action, for more on these three themes.

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Risk Warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

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