GLOBAL investors will actively seek opportunities this year in undervalued pockets of financial markets as growing concerns over an artificial intelligence (AI) bubble push traders to look beyond highly valued technology stocks, according to several analysts.
United States stocks were volatile last year, plunging to near bear market territory in April following President Donald Trump‘s sweeping tariffs, before rebounding to record highs.
The upward momentum is expected to continue this year, said analysts, though investors may have to get selective about the assets they pick.
“This environment is ripe for active investing,” said strategists at BlackRock Investment Institute.
Metal prices were the standout winners last year as the US dollar slumped on expectations of interest rate cuts by the Federal Reserve (Fed), which also boosted emerging market assets.
But strategists are betting on a few other asset classes to gain traction this year.
After years on the sidelines, US small caps may return to the spotlight as earnings prospects improve and borrowing costs fall.
“The big difference going into 2026 is that we finally are seeing earnings growth come back into small caps,” said Oren Shiran, portfolio manager at Lazard Asset Management.
Traders expect two 25-basis-point cuts from the US central bank this year, according to estimates compiled by London Stock Exchange Group (LSEG).
Small-cap companies typically carry higher debt, so they are among the first to benefit when interest rates move lower.
Jefferies equity strategist Steven DeSanctis expects the Russell 2000 index, which tracks small-cap stocks, to climb to 2,825 points by the end of the year, marking a near 14 per cent gain from 2025.
Gold’s historic run in 2025 made it the best year for the yellow metal since the 1979 oil crisis. J.P. Morgan and Bank of America forecast gold prices to hit US$5,000 per ounce this year, compared with US$4,314.12 previously.
Analysts at the Wells Fargo Investment Institute expect favourable conditions to persist, but said the gains could come at a more measured pace.
Another source of support could come from buying by central banks, which have been diversifying their reserves beyond US dollar-denominated assets.
Healthcare could be one of the standout sectors, powered by a wave of policy boosts. Morgan Stanley said the growing reach of weight-loss drugs could boost the industry.
Financial institutions, particularly banks, are also expected to outperform as merger and acquisition activity accelerates and loan growth rebounds.
The sector’s valuation remains attractive, supported by deregulation and AI-driven efficiency gains, with mid-cap banks offering compelling early-cycle opportunities, said Morgan Stanley.
The US dollar is poised for another bout of weakness this year, said analysts, as the Fed is expected to cut interest rates to cushion a cooling labour market. Political uncertainty, including the appointment of a new Fed chair, is also seen adding to the volatility.
Any selling would increase the appeal of alternatives in emerging market currencies such as China‘s yuan and Brazil’s real, with moves increasingly shaped by diverging policy paths.
Emerging markets are expected to sustain strong inflows due to a weaker US dollar and relatively benign valuations.
“Emerging markets have become less volatile than developed markets,” said strategists at BofA Global.
However, domestic politics could throw a spanner in the works, especially as several countries including Brazil and Colombia head towards elections.
High-yield and corporate bond markets could be busy this year, as robust deal-making will raise demand for buyout financing and AI heavyweights will likely continue to seek capital to fund their data centre investments, according to strategists.
As of middle of last month, high-yield issuance stood at US$325 billion, 17 per cent more than 2024 and the strongest showing since the Covid-19 pandemic-era record of 2021, according to data from PitchBook.
Event contracts, which let users wager on outcomes of real-world events across politics, sports and financial markets, are expected to become one of the fast-growing asset classes, fuelled by surging retail investor demand.
They became popular ahead of the US presidential election in 2024, and have spurred a wave of start-ups into launching event contracts.
“We’re in the early stages of a supercycle for this burgeoning asset class,” said Robinhood chief executive officer Vlad Tenev at a conference.
The writers are from Reuters
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