When communicating our key investment views to clients for 2026, LGT highlighted that market volatility would likely be substantially higher than was experienced in 2025, and recent developments underscore this assessment.
Our fundamental view is that risk assets, namely equities, would likely end the year higher than at the outset, driven by expectations of another year of strong earnings growth, but high Price-to-Earnings multiples (especially in technology and innovation-led sectors) would spur periodic bouts of profit taking.
We also took the view that the US dollar would continue its slide this year, where the broad DXY index fell by -9.4% in 2025, which is a very sizable move. The rupee dipped 5% last year, as an exception, with the euro, Swiss franc and other major currencies gaining ground against the greenback.
Furthermore, we took the view that Gold would continue to climb, mostly because central banks around the world remain committed to reducing their reserve asset share of US government bonds and are diversifying into Gold. Central banks, arguably, are not “price sensitive” in the way retail investors might be and continue to buy precious metals until their target allocation is met. Our latest 12-month forecast on Gold is USD 5,500 per oz. – and prefer Gold over Silver as the latter lacks an institutional investor base.
2026 starts on a volatile note
While the year has just started, there has been no shortage of news to drive market volatility: first, the announcement of Kevin Warsh as the nominee to succeed Jerome Powell as US Federal Reserve Chair in May 2026 sparked a knee-jerk sell-off in markets. The reason being that when Warsh previously served on the Fed’s board (2006-11), he was a vocal critic of Quantitative Easing (QE), where the balance sheet of the central bank is used to lower borrowing costs. To be fair, Warsh is not alone in this view, as QE can still be characterised as an experimental policy.
We assess that Warsh can be labelled as a “pragmatist” and so long as the labour market continues to soften and inflation moderates, then he is likely to support lower interest rates. Indeed, President Trump has been openly very critical of the Powell Fed for being too restrictive. Hence, it makes little sense for the president to appoint a new Chair that is dogmatically opposed to looser policy. In short, we think the market has overreacted and should not extrapolate on what Warsh said more than a decade ago.
The next key development has been a veritable earthquake in the Software as a Service (SaaS) sector, given the rollout of new Artificial Intelligence (AI) productivity tools. Legacy players in the enterprise software world face a sudden threat of customers switching over to AI solutions en masse, a process that would happen relatively quickly. That said, it would be wrong to write off the whole sector indiscriminately, as some software firms might be able to evolve and even thrive, but this is yet another example where AI is disrupting existing business models, and adaptation is key.
Brace for bumpy ride
In closing, investors should brace for a bumpy ride in 2026, as confirmed by the opening weeks of the year.
The saving grace is that the corporate earnings backdrop is positive, so the underlying value of what investors are buying is rising. Diversification is even more important than usual in market environments such as these.
(Stefan Hofer is Chief Investment Strategist, LGT Bank (Hong Kong).
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.
