Strong corporate earnings will support stocks in Asia, and the region is also expected to be a strong beneficiary of the artificial intelligence boom, according Jon Baranko, chief investment officer of US asset manager Allspring Global Investments.
For bond investors, he says the region will appeal for its moderating growth with contained inflation.
Allspring, originally Wells Fargo Asset Management, has been expanding in Asia Pacific since it was rebranded after being spun out in a 2021 deal with private equity firms GTCR and Reverence Capital Partners.
Baranko shares his views about the investment environment in Asia Pacific and worldwide in this question and answer with Asia Asset Management.
What kind of asset allocation strategy do you think is optimal for long-term investors?
Diversification across regions, asset classes and factors will remain crucial for Asian investors. With ongoing geopolitical risks, we see increased relevance for active management across equities and fixed income. The Asia region will benefit from stabilising tariffs, strong growth and current account fundamentals, as well as their role as “connector” countries, like Vietnam or India.
Artificial intelligence will remain a dominant theme, and Asia is a main beneficiary through regional build-out. For equities, we expect continued strong earnings supporting Asian equities and we remain overweight these into 2026.
For fixed income, a quality focus favours higher-yielding US corporate and global bonds. Hedging costs have come down, enhancing US and foreign higher-quality bonds for Asian investors.
Japanese investors are advised to diversify globally given loose Bank of Japan monetary policy and higher inflation putting upwards pressure on longer-maturity Japanese government bonds. Asset allocation focused on quality, income and liquidity seems most prudent.
What is your evaluation of the macroeconomic environment in Asia Pacific, and the most interesting markets in the region?
Asia Pacific continues to post the highest global growth rates. While forecasts suggest that regional expansion is likely to moderate over the next two years – mainly attributable to subdued economic activity in China and below-trend performance in Japan – this slowdown is offset by robust growth in markets such as India, Vietnam and the Philippines.
Inflation remains largely contained across the region and is expected to remain stable. Moderating growth with controlled inflation strengthens the appeal of the region for bond investors.
Supportive economic fundamentals plus a structural propensity for savings have resulted in substantial excess savings throughout the area. Although the post-pandemic surge in global inflation temporarily tempered savings rates, they remain positive. Much is re-invested locally, while a considerable share is allocated to international markets.
Divergent monetary policy between the US Federal Reserve and the Bank of Japan position US fixed income for superior returns. For Japanese investors, these developments imply currency headwinds, heightened inflationary pressures and comparatively muted returns.
The cost of hedging US dollar exposure for Asia Pacific investors has continued downwards, enhancing the attractiveness of dollar-denominated assets. This has fuelled demand and flows into some dollar strategies.
Bonds
High-quality intermediate duration fixed income assets are popular for surplus savings because of consistent, predictable cash flows. For Asia Pacific investors, this asset class offers competitive yields, attractive total returns, limited duration exposure and considerable liquidity.
US investment-grade credit remains well positioned to benefit from further policy easing by the Federal Reserve, which supports total returns.
Declining interest rates and steepening yield curves have contributed to robust performance in intermediate investment-grade fixed income. For instance, seven to ten-year US investment grade corporates returned 9.79% in the first 11 months of 2025 versus 7.96% for 20-year-plus corporates and 5.45% for one to three-year corporates.
Looking forward, we anticipate solid performance into 2026, affording investors favourable risk-adjusted returns without the need to assume excessive credit or duration risk.
Persistent inflows into US fixed income generate constructive technical conditions. High all-in yields, an accommodative stance from the Fed and declining hedging costs continue to support record levels of inflows, favourable spreads and compelling valuations.
As a complement to investment grade corporate debt, global government debt instruments offer additional avenues for yield generation, interest rate risk alignment and cross-market diversification.
Our multi-sector fixed income strategies have maintained active exposures across Australia, Singapore, Indonesia, Malaysia, Japan and South Korea.
Stocks
Asian equity markets enter 2026 with strong tailwinds: robust economic growth, easing monetary conditions and rapid AI advances. Yet, the key catalyst for performance will be accelerating earnings growth. We expect these to rise from 10% in 2025 to the mid-teens in 2026, which should not only extend 2025’s market rally but also allow it to broaden out.
This will be reinforced by multi-year-high stock buybacks across Asia ex-Japan, signalling corporate confidence. Strong fundamentals are further supported by sustained inflows: Asian equities have seen around $70 billion of inflows in 2025, led by China and India.
India stands out as a compelling opportunity for 2026. After underperforming in the recent emerging-market rally, valuations have fallen since 18 months ago. Government-led growth initiatives and revived earnings following a challenging 2025 should drive normalisation. Elevated valuations should moderate as earnings materialise. Stock selection will be critical.
Our stance on China is measured yet constructive. The country’s AI ecosystem is evolving independently of Western hyper-scaler capital expenditure cycles, producing world-class models at lower cost – a competitive advantage for adoption across developing markets. The [government’s] latest five-year plan underscores the importance of consumer demand, and targeted stimulus measures should stabilise growth. If reform momentum builds, upside potential remains.
