Do you see signs of euphoria in the silver trade? It is much more volatile than gold and prone to wild swings. But are we at the beginning of a multi-year bull run, or do you think excessive optimism has made the upcycle shorter?
We remain constructive on gold and silver, with structural drivers for precious metals intact.Gold remains the safe haven of choice for many investors, supported by the following structural headwinds: i) US fiscal concerns and the risk of monetary debasement; ii) macroeconomic uncertainty; and iii) continued central bank purchases and reserve diversification. Together with shorter-term catalysts such as a weaker dollar, geopolitical tensions and the possibility of further monetary easing, the case for continued gold price appreciation remains strong, with our price target at USD5,100/oz by 2H26.
Silver has also benefited from increasing investor interest in real assets to hedge against monetary depreciation. Supply restrictions and disruptions have further boosted silver prices. According to the World Silver Institute, demand has exceeded supply for the past three years. This dynamic trend will continue, with silver being used in a wide variety of industrial applications (e.g. solar panels, electrical switches, catalysts and medical equipment).
Asset diversification has been a struggle for many investors as they either feel FOMO due to the rally in precious metals or because their allocation to gold and silver has passed 20-30%. What should investors do in both cases?
While we remain bullish on precious metals like gold for their role as an effective risk diversifier, investors should avoid letting short-term market movements or FOMO drive their asset allocation decisions. Regular rebalancing is a critical part of disciplined asset allocation. Therefore, we recommend that investors periodically rebalance their portfolio to align with the target weights in their strategic asset allocation, which is designed to achieve their long-term financial goals.
Periods of strong performance, such as the precious metals rally, can cause allocations to deviate from target weights, causing investors to unintentionally take on additional risk. By sticking to these predetermined allocations, investors will not succumb to the temptation of panic selling during market downturns or taking excessive risks during bull markets.
You recently said that the AI tree has all the hallmarks of foam. So, do you think this foam is now becoming a bubble and will burst in the next 1-2 years?
Although the AI boom is showing signs of froth, AI leaders today are hugely profitable, with strong balance sheets that fund expansion from operating cash flows. Companies like Meta are showing clear monetization, with AI-driven advertising tools reaching $60 billion by the end of 2025, demonstrating the direct link between AI spend and revenue growth. Instead of the catastrophic crash of 2000, we are likely to enter a consolidation phase in the next 1-2 years, where markets filter out true AI value creators from those who ride the wave. This creates a divide where companies with clear ROI are rewarded by investors, while companies that burn cash without results face serious corrections. We believe the underlying technology is transformative and real; Investors simply have to be more critical.
One way investors can participate in the AI theme without becoming overly focused is by looking beyond the technology sector. The impact of AI is far-reaching and extends far beyond the technology space, reshaping business models in the broader economy. In our view, a more risk-adjusted way to gain exposure to this AI wave is to look for “adapters” that embrace AI to drive efficiency gains and higher profitability. Based on this, we believe large-cap companies are better positioned to scale AI adoption. These companies typically have greater capital and data advantages to deploy AI at scale. This will therefore translate into a greater AI-related productivity gap between large and small companies.
In your last report you said that investors should look for value in equities from Asia, excluding Japan. How bullish have you become on Indian equities especially, given that the Nifty has been in a tight range for the past 15-16 months?
Indian stocks have suffered downgraded earnings ratings over the past year, with 2025 growth estimates revised to 11% from 17% in February. The revisions reflected weaker-than-expected results – especially from select IT and consumer companies – in addition to delays in the US tariff deal, which weighed on export-oriented sectors. This profit decline differed from that of global peers, where growth expectations have been revised upwards since August last year against the backdrop of lower US tariffs.
At the same time, valuations in India remain high and are around 1SD (or more) above the 13-year historical price average. The combination of softer earnings momentum and rich valuations has heightened foreign investors’ caution, contributing to significant outflows in 2025 as they move to lower-valued emerging markets and AI-concentrated markets. We believe that a more sustainable recovery in foreign investor inflows will likely depend on solid corporate earnings and clarity on US tariffs.
Looking ahead to 2026, we expect a gradual improvement in India’s earnings outlook. This is supported by the full transmission of 2025 policy measures, including GST cuts, the RBI’s 125 basis point interest rate cuts, increased credit availability and the recent banking deregulation – all of which support economic growth and domestic demand-oriented sectors. Government support for the export sector can also provide a buffer against US tariffs.
Moreover, domestic equity liquidity is likely to remain robust, providing long-term market support. The financialization of household savings in India is expected to remain a strong structural theme. Equity funds mark the 58th consecutive month of inflows and record high contributions to the Systematic Investment Plan (SIP), highlighting the resilience of domestic investor participation despite India’s lagging equity performance.
Given these factors, we remain constructive on the Indian consumer sector and banks. Banks, a key component of the Indian equity market, offer strong structural features and benefit from an improved credit environment, with healthy asset quality, manageable credit costs and comfortable capital adequacy. The balance sheets of major private sector banks in particular are well positioned to support credit growth in the retail, SME, infrastructure and manufacturing sectors, in line with India’s investment-led growth trajectory.
However, we keep the Indian IT sector on our watchlist for tactical or quality-oriented exposure. A better entry point could emerge once (i) global IT spending stabilizes, (ii) the monetization of AI becomes clearer, and (iii) valuation expectations are adjusted to reflect lower medium-term growth. In the near term, the industry faces dual headwinds: cyclical pressure from slower global IT spending, especially from the US and Europe, and structural disruption from AI, which is putting pressure on prices for traditional application maintenance and labor-intensive services. Customers demand productivity gains and results-oriented pricing, which weigh on short-term margins and revenue visibility.
Do you think parts of the market in India have become cheaper, which makes the case for FII refund?
Indian equities traded at an average valuation premium of around 50% over Asia-ex-Japan equities on a 10-year price-to-earnings multiple, supported by favorable demographics, various reforms and fiscal stimulus under PM Modi and improving macro fundamentals. After a period of underperformance last year, this premium has fallen from 100% at the highest level to the average level, potentially strengthening the case for a renewed inflow of foreign institutional investors. We believe that interest from foreign investors will return as investors look to diversify and look for markets with strong domestic growth, where Indian equities have a lot to offer in the consumer and banking sectors.
Do you think FIIs will start buying Indian equities only after the India-US trade deal is signed as tariffs put pressure on the rupee?
The Indian rupee depreciated to a new low, continuing its weakening streak and pushing past $91.5. Last year’s bearish carryover was further fueled by a confluence of both global and domestic signals. The global VIX rose sharply, indicating general market weakness. This was influenced by geopolitical events and higher global bond yields. In this context, recent signs of easing tensions over Greenland should provide relief for market sentiment. Domestically, the downward pressure on the rupee comes at a time of apparent strength in economic growth, with 1Q-2QFY26 averaging 8% annualized and our FY26 forecast above 7.5%. Inflation was also at a moderate level.
Looking ahead, we see room for further currency depreciation, albeit at a more moderate pace than in recent months, given expected currency intervention by authorities and some optimism reemerging about US trade negotiations following constructive comments from Davos. An India-US trade deal would be positive for market sentiment, reduce policy uncertainty and catalyze capital flows.
India will also make its annual budget presentation on February 1. Do you expect tax benefits for foreign investors?
Following a notable outflow of foreign investors and a weakening rupee, market participants are eagerly awaiting key measures from the India Union Budget 2026-2027. There is market speculation about possible policy adjustments, including a possible reduction in the long-term capital gains (LTCG) tax rate, which was set at 12.5% in July 2024, and an increase in the tax-free LTCG threshold. Such measures, if implemented, could potentially spur a revival of foreign investors in the Indian stock market by increasing the attractiveness of investor returns.
#Gold #silver #Indian #stocks #Joanne #Goh