From the desk of the CIO: Looking ahead

By Matt Wacher, Chief Investment Officer, APAC

Key points

• Markets to remain volatile
• Focus on fundamentals, probabilities and price
• Granular research is key

Though 2025 threw many challenges at investors, the great news is that it also brought many closer to reaching their goals by delivering unusually high returns. This is to be celebrated, especially as investors were tested in March as markets sold off. Staying the course by remaining invested, focusing on goals rather than media headlines, and responding to value proved the most effective way to deal with the shocks and volatility. We expect that tried-and-tested playbook to be just as effective this year.

Coping with whatever 2026 brings will require investors to know what to respond to, by staying focused on the building blocks of investing: fundamentals, probabilities and valuation. Questions to ask as conditions change include: how much will the new information really impact asset cashflows, relative to other factors that also matter? How will it change the range of scenarios and how likely they are to occur? Is the news already priced in or has there been an under or overreaction?

Last year, this approach added a lot of value. In our Morningstar managed portfolios and funds, we bought equities and sold bonds in early April as we assessed that equities were oversold on the Tariff Day news. Later in the year, we added to healthcare stocks after fears rose of adverse regulation, and we took profits in utility companies after the AI-led surge. We also added to Korean equities in the wake of the tariff fears, at very low prices.

In many ways 2026 has started out just like 2025 – a barrage of policy shocks driven by the US government. These include direct interventions in the defence, finance, homebuilding and mortgage industries, plus regime change in Venezuela. Most high profile of all is the outright attack on the chairman of the US central bank. This could erode trust and signal that much lower interest rates lie ahead, but many other factors will also play a role in driving outcomes.

We expect AI to continue playing a big role in 2026, in terms of economic, company and market behaviour. We have revised our US GDP growth forecasts on the back of increased investment spending and expect AI to dampen inflation, as adoption enhances productivity and reduces costs. There is a parallel with the growth in internet commerce that took off in the late 1990s, which was a boon for bonds.

We have also revised our fair value estimates for major corporate players including Alphabet, Nvidia, Broadcom and Apple, which benefit from the surge in spending or improvements in their own capabilities. There are also big beneficiaries outside the US such as Samsung and SK Hynix, both running in the global race to achieve AI superiority. Delivering mas sive sales and profits, they are priced more conservatively than their US counterparts.

One headwind for investors is that more optimism is embedded in share and corporate bond prices, after the rally of the past 12 months. We think returns will inevitably be lower in 2026 but can be boosted by more active than passive opportunities that look beyond major markets and industries.

Morningstar Investment Management’s fundamental, long-term approach takes a rational approach in the face of volatility and unpredictable market movements, knowing that the only thing we can trust in markets is that turbulence is a given. Ultimately, 2025 was a testament to the core principles of investing, and we expect these methods to continue holding investors in great stead in 2026.

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