There will be a “role reversal” in global investment markets, whereby performance will be increasingly driven by fundamentals, such as profit growth, rather than sentiment, according to a recent report.

A “broadening out” of market returns can also continue amid global profits and GDP convergence, with investor interest in emerging markets ( EM ) supported by the potential for further US dollar weakness and exposure to Asia’s burgeoning technology sector, finds HSBC Asset Management ( HSBC AM )’s 2026 Investment Outlook: Role Reversal report.

Robust and credible policy frameworks, the report adds, have meant improved macro resilience and less EM asset volatility.

Meanwhile, the hedging properties of developed markets ( DM ) government bonds will be undermined by high debt and sticky inflation, making bond substitutes critical which calls for investors to “diversify the diversifiers”.

Growth coming together

While global GDP growth is regaining strength, growth in the US is looking less exceptional, the report shares, although recession risk is mitigated by Fed cuts and outsized levels of capital expenditure, centred on the artificial intelligence ( AI ) boom.

A replay of the late 90s productivity boom could see stronger US growth, but supply side constraints mean growth is likely to come with higher inflation, especially in the context of tariffs.

A key downside risk to monitor will be the health of the US labour market which is already showing signs of significant cooling.

Asia still growth leader

The global trade environment will be challenging in 2026, the report offers, but Asia and EMs are still likely to experience superior growth rates. Regional trade integration is helping to offset weaker trade with the US, while fiscal and monetary policy remains supportive, and domestic demand continues to be resilient. Fed cuts would open the door to more EM central bank easing, as most EMs are likely to follow the Fed in 2026.

China remains committed to stabilizing its economy via a wide range of targeted stimulus measures, including fiscal support for consumers, HSBC AM argues, while prioritizing investment in technology-led industries. Addressing overcapacity is likely to be a gradual process, but should help reflate the economy over time.

Meanwhile, India remains a star performer in the region with government investment a key growth driver. The country’s large domestic-oriented economy – boosted by recent measure such as goods and services tax rate rationalization – also helps shield it from global headwinds.

Elsewhere, many Southeast Asian economies are likely to benefit from supply-chain diversification. The potential for a semiconductor supercycle driven by the global AI boom could be a boost to Taiwan and Korea. In Japan, the economy is transitioning to an environment of higher inflation and wage growth which can trigger stronger household spending.

Broadening out likely to persist

For investment markets, our expectation of converging global GDP and profits growth in 2026, combined with big valuation gaps versus the US, supports a broadening out of market returns. Nevertheless, this does not preclude the possibility of US returns remaining solid. US earnings may continue to be strong amid investment in AI and although valuations look stretched, they are not as extreme as during the height of the dotcom bubble. However, uncertainty over the AI business model could trigger more volatility in 2026.

Further positive momentum in EMs does not solely rely on the potential for further US dollar weakness. While this is possible – especially given US dollar overvaluation – investor appeal can be driven by recent macroeconomic reforms that make owning EM assets inherently less risky.

Additionally, China’s burgeoning technology sector can continue to catalyze investor interest, with ongoing research and innovation – including around AI – potentially challenging the dominance of the US technology sector in 2026 and beyond.

Nonetheless, varying export shares of GDP, and policy impacts – including differing US tariff rates by country, and fiscal, monetary, and industrial policy divergence – means that country level performance is likely to still be idiosyncratic. This implies divergent performance paths and underscores the importance of an active approach to EM allocation.

Diversify the diversifiers

The supply-side implications of a shift to the “multi-polar” world and global economic fragmentation – higher and more volatile inflation – contributes to stickier inflation in the West. When combined with high debt, developed market government bonds may be less reliable in hedging portfolios.

Multi-asset investors will look for “bond substitutes”, which can include liquid alternatives, such as gold and hedge funds. Real assets, such as listed infrastructure, are well placed to navigate a higher inflation scenario, while private assets benefit from structurally low volatility, with private equity in particular benefiting from Fed rate cuts.

Asian fixed income: Strong resilience amid external uncertainty

The outlook for Asian fixed income, according to HSBC AM, is constructive. A shifting global backdrop including  the likelihood of further US rate cuts and a possibly weaker dollar is creating a powerful tailwind. This is further fuelled by a broader convergence in global growth and profits as well as Asia’s tech innovation, which will be a sustainable driver of returns.

Asian economies continue to show robust external balances and disinflationary trends, create a stable and accommodative foundation for growth. Coupled with China’s ongoing policy stimulus and reform efforts along with a softer monetary stance in the US and a weaker dollar, this gives, the report states, Asian central banks greater flexibility, supporting local currency bonds and allowing regional markets to perform with greater independence.

In credit, Asia investment grade and high yield offer a mixed-but-constructive setup; spreads may drift wider into year-end, yet a cyclical upswing could compress spreads in 2026 and unlock idiosyncratic alpha opportunities through selective security choices in the years ahead.

Local currency funding should continue to reduce US dollar supply, while broadening sources of income. Our stance is selective, hedged where appropriate, with a barbell approach to capture compression in high-quality names and unique opportunities.

In summary, this is, according to the report, a favourable period for Asian fixed income.  The confluence of supportive global dynamics, robust regional fundamentals and a burgeoning tech-driven growth narrative provides a compelling set-up.

Asian equities: Tech, healthcare fuel growth opportunities

In China, the anti-involution campaign in upstream sectors has already delivered clear results, with producer price deflation easing significantly in recent months. This supply-side restructuring, the report believes, will remain a multi-year policy priority, focused on lifting capacity utilization through targeted capacity reduction, stricter regulation and higher industry standards.

At the same time, stimulating consumption, the report shares, has been elevated to the highest economic priority for the first time in more than a decade. The strong emphasis placed on consumption during the latest National People’s Congress signals a more supportive fiscal stance and is visibly restoring investor confidence.

Looking ahead, the anti-involution push, the report predicts, will gradually extend into consumer-facing industries, helping restore corporate pricing power and encouraging households to accept modestly higher prices.

Combined with direct consumption-support measures, this should, the report argues, provide meaningful support to demand sentiment. Against a favourable base, HSBC AM forecasts a mild reflationary impulse to emerge in the second half of 2026.

After three and a half years of continuous downward earnings revisions, corporate profitability is showing signs of stabilization.

A structural improvement in return on equity, together with sustained, moderate policy support, should, the report posits, enable Chinese companies to better withstand macroeconomic shocks and give investors a stronger fundamental case for longer-term commitment.

China’s new technology leaders continue to innovate and adapt, maintaining a competitive edge in the global market despite facing external pressures.

In the healthcare sector, innovative drug out-licensing activities have risen in the past few years with the country producing more high-quality medicines that meet international standards.

While the number of Chinese-made first-in-class innovative drugs still lag in developed markets, HSBC AM expects China to narrow the gap in the next few years, supported by the generally lower labour and research and development costs in the country, as well as ongoing government support.

TMT ( telecom, media and technology ) is another sector to note as Chinese companies are rolling out AI applications at lightning speed. Global investors are turning more optimistic about China’s AI competency amid AI chips and technology exports restrictions from the US.

The large language model development will also speed up China AI computation hardware localisation. HSBC AM expects earnings in selective sub-segments may grow meaningfully this year due to technology advancement and further monetisation enhancements.

Commercialization of humanoid robots is poised to accelerate sharply through 2026. In contrast to the US, demand in China is driven by government-supported data collection sites, with the humanoid robot sector moving from hype to tangible industrial adoption, with a focus on execution, delivery and ecosystem building. Leading component manufacturers will benefit once mass production begins.

The broader outlook for Asian equities, HSBC AM offers, remains constructive, supported by proactive policy measures, ongoing market reforms, and technological advancement. India continues to offer a compelling structural growth story driven by favourable demographics, rising per-capita income, supply-chain diversification, a multi-year manufacturing and capex upcycle and the delayed but powerful effects of earlier reforms.

Corporate and banking sector balance sheets are in their strongest shape in decades. Across the Association of Southeast Asian Nations ( Asean ) region, HSBC AM finds, young populations and a rapidly expanding middle class are set to drive consumption and intra-regional growth.

From a valuation perspective, most Asian markets are trading around long-term average forward P/E ratios, while Korea and parts of Asean screen notably cheap relative to history, offering attractive entry points for long-term investors.

Asia, EMs poised for growth

Despite a challenging global trade environment, Asia and EMs are poised for superior growth, according to the report, driven by regional trade integration, resilient domestic demand and supportive fiscal and monetary policies.

The shift to a multi-polar world and economic fragmentation underscores the need for diversification.

In summary, Asia’s robust fundamentals, proactive policies and technological advancements, HSBC AM believes, position the region as a key driver of global growth and investment opportunities in 2026.