Global Asset Allocation: The View From Europe

Outlook

Resilient economic growth and strong earnings, with expectations still high, support equities.
Artificial intelligence (AI) investment is now benefiting companies well beyond US large-cap growth.
Conflict-driven energy prices, inflation, and higher rates pose a bigger risk than any slowdown in AI demand.
Elevated valuations argue for a measured approach.

Themes Driving Positioning

Easing off the accelerator

The first rate hike from the Federal Reserve (Fed) is best seen as a partial reversal of last year’s insurance cuts. Capital spending and demand remain firm, suggesting growth should remain resilient—levelling off rather than rolling over. Financial conditions remain accommodative, meaning businesses and households can still access capital. In other words, the Fed is easing off the accelerator, rather than slamming on the brakes. Inflation will decide how much further it needs to go, and policymakers appear to be placing more weight on how broad and persistent it is. If price pressures fail to cool while growth stays strong, further hikes become more likely, reinforcing the case for short duration.

Financing the build‑out

The AI investment cycle is entering a more capital-intensive phase, and hyperscaler balance sheets are no longer the whole story. Corporate bonds, data centre financing, and chip-backed structures are forming a distinct AI credit ecosystem, with AI-related hyperscaler and infrastructure bonds rising from about 5.4% of the US investment grade corporate benchmark at the end of 2025 to now 8.3%.¹ Enterprise adoption is moving towards scaled production, even as regulation and safety draw more scrutiny. Continued investment and adoption support our overweight to US growth stocks. While the risk of higher yields remains the main driver of our underweight on US Aggregate bonds, heavy AI-related issuance adds a technical headwind for investment grade bonds.

¹Source: T. Rowe Price analysis, as of September 9, 2026.

For a region-by-region overview, see the full report (PDF).

Yoram Lustig, CFA, PRM™ Head, Global Investment Solutions, EMEA

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