Catenaa, Monday, September 21, 2026- Standard Chartered expects strong corporate earnings growth to offset the headwind from the Fed rate hike, driving positive performance for global equities.
In response to questions from clients, Fook Hien Yap, Senior Investment Strategist at Standard Chartered, said they remain Overweight global equities, as the Fed’s latest 25bps rate hike had been anticipated by the bond market, partly reflected in the bond yield rise seen so far in 2026.
He said that using the US 10-year government bond yield as a proxy for the risk-free rate, the yield has risen by 80-85bps this year.
“We estimate that each 25bps rise in the discount rate presents a valuation drag on global equities,” he said. “On this basis, the rise in yields represents a potential 10-14% headwind for equities this year.”
However, Fook said that the Fed’s hike reflects a solid expansion of US economic activity, resilient domestic spending and robust capital investment.
“This is consistent with the positive earnings revisions we have seen this year, with 2026 earnings growth projections now at 34% (and 16% for 2027),” he said.
He added that global equities are up 14% year-to-date, but even with a 14% valuation headwind from higher yields, they believe they can rise further, given strong earnings growth in 2026 and 2027.
Also, Ryan Goh, Investment Strategist at Standard Chartered, said that concerns over “pacing the frontier” are overdone despite the calls by CEOs to slowdown in AI development.
“We maintain our preference to remain invested in and diversified across Big Tech and semiconductor leaders,” he said.
Goh said that they believe it is prudent for investors to avoid overreacting to the recent calls for a slowdown in frontier AI model development, as they focus on responsible AI development, rather than halting AI model development or reducing spending.
The global AI leadership race, he noted, reinforced by the US and China’s strategic ambitions, also makes a coordinated slowdown unlikely.
According to him, while the near-term narrative may shift from AI training beneficiaries towards inference plays, hyperscalers continue to signal strong AI infrastructure commitments and improving monetisation, supporting their AI capex outlook.
He said that rising AI adoption and agentic use cases should sustain inference demand, even if training activity moderates, benefiting custom AI chips, NAND flash memory and hyperscalers.
“We believe the decline in valuations this year more than compensates for any downside risk to AI capex. Our Opportunistic idea on Global Semiconductors further reflects our conviction, with attractive valuations supporting selective additions during volatility,” he added.
