SINGAPORE – Artificial intelligence is expected to remain the dominant driver for US and Asia equities in the second half of 2026, while gold continues to stand out as a preferred hedge against downside risks such as inflation, according to some banks at their recent market outlook briefings.
However, investors are increasingly questioning whether AI investments will deliver sufficient returns, while the risk of further interest rate hikes amid persistent inflation could raise borrowing costs and put pressure on equity valuations.
Meanwhile, limited supply and sustained central bank demand are expected to keep gold prices supported.
Upbeat on AI
US equities and Asia ex-Japan stocks have been buoyed by strong AI-driven earnings growth, according to Standard Chartered (StanChart).
Within Asia ex-Japan, StanChart favours Taiwan for its strong capabilities in semiconductor manufacturing, China for its tech innovation that keeps up with AI developments, and India for its attractive mid-teens earnings growth, which is driven largely by domestic factors and is less reliant on the AI theme.
But the bank is less bullish on ASEAN, citing the region’s relatively subdued earnings growth and limited exposure to the technology sector, which it believes will cause the bloc to underperform the broader, tech-heavy Asia ex-Japan market.
However, concerns remain over the returns on AI investments, given the technology’s capital-intensive nature and the significant resources required to build supporting infrastructure.
DBS said: “While AI promises productivity gains, it is probably true only from a longer-term perspective. The current phase is capex‑intensive and supply‑constrained. In the near term, the AI frenzy translates to higher inflation given the strong infrastructure build-up, which pushes up the demand for everything from software to electronic parts to electricity consumption.”
OCBC said that attention will increasingly turn to a company’s monetisation ability after substantial upfront investments.
As hyperscalers continue to ramp up spending in AI and energy, DBS said it favours companies that supply the essential infrastructure, particularly those in the semiconductor supply chain, network infrastructure and specialised hardware, as well as oil services and equipment.
Gold as a diversifier
StanChart is bullish on gold, calling the precious metal its “preferred diversifier”, alongside core investments in other major alternative asset strategies such as hedge fund strategies, private equity, private debt, private real estate and digital assets.
Central banks in emerging markets like China and Poland are increasing their allocation to gold, said StanChart’s global chief investment officer Steve Brice.
Poland was the largest buyer of gold in May, adding 18 tonnes, while China bought 10 tonnes, extending its net purchases for the 20th month in a row, according to World Gold Council data.
Singapore also added gold in May, making its first net monthly purchase since September 2025.
“In our view, long-term diversification demand from emerging market central banks remains intact as a long-term positive driver of gold prices,” StanChart said.
DBS chief investment officer Hou Wey Fook said that strong central bank demand for gold is driven by efforts to diversify away from the US dollar and concerns over the erosion of currency value amid inflation and monetary risks.
Gold is often viewed as a store of value during periods when investors worry that currencies may lose purchasing power because of factors such as inflation.
The limited supply of the bullion could also drive prices up, said DBS.
“Looking at the record of discoveries in the past 10 years, new supply of gold will be heavily constrained going forward, as most large, shallow, high-grade deposits have already been unearthed,” said Hou.
Gold also remains an attractive hedge against some downside scenarios such as stagflation, said StanChart, even as it lowered its three-month price target to US$4,750 per ounce and 12-month price target to US$5,100 per ounce.
DBS expects gold to regain its traditional appeal as a safe-haven asset.
Gold recently traded more like a risk asset due to crowded speculative positioning, resulting in volatility and profit-taking. However, this phase is unlikely to persist, with gold expected to reassert its safe-haven role, said DBS.
The precious metal has fallen by over 20 per cent from its all-time high just above US$5,600 an ounce in January.
Hou said: “It is clear to us the price of gold will be higher in the longer term. We stay constructive on gold, even though the price correction has been consolidating in the past six months.”
OCBC group research analysts, however, said that while gold’s medium-term diversification role remains valid, it needs a friendlier macro backdrop before the bank can rebuild stronger conviction.
OCBC revised down its gold price forecast, citing a more challenging near-term macroeconomic environment. The bank now expects gold prices to average US$4,180 per ounce in the third quarter and US$4,360 per ounce in the fourth quarter.
“This year has been a reminder that even a structurally bullish asset can suffer sharp valuation resets. Gold started 2026 well, but has since turned lower as higher real yields, a firmer US dollar and stretched positioning challenged the safe-haven narrative,” the analysts said.
