As we look forward to the second half of 2026, a growing disconnect has emerged between a challenging global economic environment and surprisingly resilient financial markets. The economy and markets are living in “different worlds”, suggests HSBC Asset Management’s (“HSBC AM”) mid-year outlook.
In an environment where economies may be facing multiple supply-side shocks and geopolitical uncertainty, markets over the first half of the year have remained calm and delivered strong returns.
HSBC AM characterises the current environment as one shaped by “two shocks and a boom” – supply-side disruptions linked to geopolitics and energy alongside a powerful AI investment cycle. While these forces are creating a more fragmented macro backdrop, they are also generating new opportunities across sectors and regions.
Emerging markets have performed particularly well across equities, bonds, and currencies, and have benefited from the strength in Asia’s technology sector and Latin American resources. At a company level, corporate profitability has been strong, with earnings exceeding expectations globally and supply shocks not materially damaging corporate profitability. The combination of strong profits and stable financing conditions is helping to suppress market volatility.
“Markets have seemingly been able to shake it off, with market returns in the first half of the year looking good. Against the backdrop of the headlines of 2026, returns suddenly look really good.”
Joseph Little, Global Chief Strategist at HSBC Asset Management
Looking into the second half of the year, the picture HSBC AM is seeing is one shaped by periodic volatility, but markets can continue to advance with a series of opportunities presenting themselves. This may require a different, more selective kind of ‘broadening out’ than we perhaps anticipated at the beginning of 2026.
Markets Can Continue to Advance Despite Uncertainty
Investors should expect periodic volatility, with supply-driven economic dynamics creating a bumpier path for markets. Short-term headlines alone may not warrant a shift to adopt a risk-off stance. While geopolitical developments may create bouts of volatility, their implications for long-term earnings and market fundamentals are often more limited than initial market reactions suggest.
Corporate earnings remain the key indicator to watch and have continued to surprise positively in many regions, supported by strong profitability and ongoing investment linked to AI.
Investment Opportunities Beyond Mega-Cap AI
As spillovers from the AI capex boom become more apparent, HSBC AM believes strong profit performance should hold and broaden “beyond borders” into non-tech sectors. HSBC AM expects the next phase of AI-related investment to increasingly benefit sectors beyond technology, including industrials, infrastructure, and utilities, as companies invest in the physical systems needed to support deployment.
Bond yields will need to be monitored, but a low volatility Summer might be a reasonable assumption. Emerging markets could also be well-placed to benefit, with North Asia supported by the AI megatrends and Latin America by the material boom. Overall, emerging markets can offer a large tech exposure and strong profits, which is set against the backdrop of a weakening dollar and is an area of the market HSBC AM believes is still neglected by global investors.
Investors should also “diversify the diversifiers”
Diversifying the diversifiers remains a relevant principle in today’s market. With yields now more attractive across a range of asset classes, investors can build more resilient portfolios through diversified sources of income, spanning government bonds, private credit, infrastructure and equity income strategies. This supports the “yield to opportunity” theme.
Income generation can provide stability and resilience amid market uncertainty. HSBC AM believes the best approach is to focus on active bond strategies (e.g. short duration, 30-year Gilts, or linkers), lower beta equity strategies (real estate and infrastructure), equity income strategies or a range of public and private credit market strategies.
Conclusion: remain focused on long-term objectives, and diversify smarter
As investors navigate an increasingly complex global landscape, the disconnect between economic uncertainty and market resilience is likely to remain a defining feature of 2026. While geopolitical uncertainty, supply-side pressures and shifting policy dynamics continue to create challenges, strong corporate earnings, the transformative impact of AI investment and improving income opportunities across asset classes are providing important support for markets.
“Against the current backdrop, investors should remain focused on long-term opportunities rather than short-term headlines. The next phase of market performance is expected to broaden beyond a narrow group of technology leaders, creating opportunities across emerging markets, infrastructure, materials, industrials and diversified income strategies.
“But be careful not to overpay for those themes. In a world shaped by “two shocks and a boom”, maintaining diversification, focusing on quality earnings and capturing new sources of growth and income will be critical to building resilient portfolios in today’s “Different Worlds” environment.”
Joseph Little, Global Chief Strategist at HSBC Asset Management
To read the full report, please click here: Mid-Year Outlook 2026 | HSBC Asset Management
