The writer is Group Chief Investment Officer, Wealth Management at Emirates NBD
2026 has been tumultuous, volatile, but overall positive for diversified portfolios. Recent weeks, however, have been adverse, with both energy prices and interest rates under pressure. Is this a buying opportunity, or the beginning of something more sinister?
Hostilities have resumed in our region, and energy prices threaten both growth and inflation. Brent above $100 is serious, but Shanghai crude futures 20 per cent above their March peak, which is even more concerning. Worse yet is the diesel situation: refining costs over $100 per barrel, almost four times the historical norm. Diesel powers the global economy, from transport to agriculture. Regional geopolitics can turn into a global, holistic inflation problem.
Geopolitics are so fluid we will not make any prediction. That said, we see two reasons not to panic. First, markets are aware; they aren’t pricing in the worst-case, though they expect no quick resolution. Second, the economic and political cost is so high that the situation cannot last indefinitely. Markets are priced for a status quo, which seems reasonable to us.
The second major risk lies in the broad AI ecosystem. Hyperscalers’ funding needs now exceed their cash flow generation; cost of capital rises while returns remain distant. Usage accelerates, but competition intensifies across models, chipmakers, geopolitical blocs, and public versus private markets. Against this backdrop, Anthropic, OpenAI, and others recently called for a concerted slowdown, just a week after funding heavy computational pushes to flex their mathematical capabilities. That came as a shock. The AI buildup drives growth, billions in credit rely on future commitments, and unrealised private-market gains materially embellish many P&Ls.
No imminent slowdown likely
Our view is simple: basic game theory rules out a slowdown. Like the prisoners’ dilemma, no player can rationally stop innovating without certainty that others will, especially when market dominance and value capture are still up for grabs. The race is on.
After the risks, let’s look at the facts. They are, actually, mostly positive.
Top-down first: growth is solid, not just resilient. It is accelerating despite the energy shock, buoyed by booming investments, steady government spending, and strong US consumption. Inflation is sticky, but not out of control, ranging from 1 per cent in China to 3.5 per cent in the US, including food and energy. Crucially, central banks have focused on credibility, keeping long-term implied inflation expectations anchored: the US 5Y/5Y swap at 2.4 per cent is actually lower than before the Iran conflict.
This brings us to rising interest rates. First, it is healthy for investors to see borrowers compete for capital across the risk spectrum. Second, 5 per cent for the US 10-year is a headline, but not a historical anomaly. It reflects growth perspectives at least as much as inflation or fiscal concerns. Robust growth is also good for credit spreads, which remain tight relative to history yet material in absolute terms, given reasonable default risks. Finally, corporate earnings dwarfed expectations in Q1 and Q2, even when stripping out paper gains from private AI holdings. The trend into year-end is intact, placing the forward P/E of the MSCI All Country World Index near 16 – two points cheaper than in December.
Our conclusion has two parts. The easy one is expecting continued volatility into year-end, driven by geopolitical developments and upcoming US elections. The tough one is digesting that volatility without retreating to the sidelines. We stay invested: we have increased our fixed-income allocation to secure income, while staying overweight on emerging market stocks, particularly China, not priced for what it continues to achieve. The state of the world guarantees volatility, but fundamentals do not suggest an imminent catastrophe.
Source: Khaleej Times