From the desk of the CIO: Markets bounce back, with clear AI theme

By Bryce Anderson, Senior Portfolio Manager

Key takeaways

• Equity markets continue a significant bounceback
• AI is proving highly impactful, though remains difficult to predict
• These types of investments can contribute to market shocks, which in turn create opportunities for prescient investors.

2026 is rewarding investors that stay the course. Equity markets have staged a powerful comeback from the March lows, buoyed by larger than expected corporate earnings. Even though bond markets remain hostage to inflation fears, total portfolio outcomes have been better than usual. Worse inflation outcomes are being priced into bond markets which now imply a rise in interest rates. For reasons outlined in my last CIO letter, we are more sanguine about the medium-term inflation outlook because of structural changes in energy demand and supply plus more slack in labour markets.

AI remains a key theme driving markets with clear winners and losers. The step up in AI capabilities has shone a light on companies that are vulnerable to reduced pricing power and more competition, as noted recently by our colleagues in Morningstar Equity Research. In their recent study of AI impacts, they downgraded 40 companies in terms of the Morningstar Economic Moat Ratings. These denote competitive advantages that enable firms to maintain superior profitability for longer and so make them more valuable. Enterprise software and IT services were most heavily impacted, sectors we held less of than usual in portfolio due to concerns about overvaluation.

A clear winner from AI are companies making essential inputs needed to accelerate computing power. This is where a lot more money is being spent, creating a big imbalance between demand and supply, for specific types of computer chips. Samsung and SK Hynix in Korea are big beneficiaries, reporting ballooning profits and new orders. The fundamentals underpinning these businesses have improved, supporting a large rise in their underlying value and share price. We added exposure last year which paid off handsomely in 2025 and 2026.

AI is both highly impactful and hard to predict. In this way, it’s similar to geopolitical shocks that have roiled markets. The silver lining is that shocks can create great buying opportunities when there is indiscriminate selling. To take advantage, you need to prepare in advance, have broad research coverage to spot when prices reach attractive levels and then be prepared to act. That approach worked well in the 2020 COVID shock, the 2022 inflation shock, the 2023 Silicon Valley Bank collapse, the 2024 South Korean coup attempt and the 2025 “liberation day” sell off. The investments we made in their wake, all boosted client outcomes, from high yield bonds and oil and gas shares to infrastructure companies, financials and Korean equities.

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