Optimism for equities among private banking chief investment officer (CIO) teams has continued for a third quarter, despite some hesitation over stretched valuations and the impact of geopolitical events. Sentiment towards gold still remains positive, but has moderated slightly.

The biggest shift has been a switch from a more reserved stance toward alternatives to a much more constructive one, with hedge funds being at the forefront of this change. Private banks, including DBS, have reported massive increases in hedge fund inflows this year, corroborating APB survey data.

On the other end of the spectrum, fixed income, particularly high-yield, was the most underweight asset class in the banks’ 3Q26 outlooks, due to asymmetric risk-reward returns and historically low credit spreads. However, within fixed income, emerging market bonds stood apart as a rare bright spot, supported by elevated yields and improving fundamentals.

Three consecutive quarters of equity optimism

Regarding equities, as in the previous quarter, Asia’s private banks remained split between overweight and neutral, with the US seeing the most overweight positions. Several banks are optimistic on Asia, while all banks are either underweight or neutral on European equities.

Overweighting US equities, Standard Chartered sees the region as less vulnerable to oil shocks, with strong earnings growth driven by AI tailwinds and earnings-per-share growth broadening beyond the tech sector. Echoing this, outside of technology, J.P. Morgan is positive on utilities and financials, especially large-cap banks.

In Asia, UBS sees North Asia driving regional performance through earnings growth, while potential oil price declines could provide major relief for India and parts of Southeast Asia, where some markets are down 10% to 40% year to date.

“Our view is this – the best way to stay bullish today is not by doubling down on the AI trade per se. It is by looking for sectors and regions that can still participate in the next phase of the revenue growth,” said Min Lan Tan, head of the chief investment office APAC at UBS Global Wealth Management, at the bank’s outlook roundtable.

UBS and DBS are underweight Europe due to geopolitical risks, trade uncertainties and relatively weaker earnings growth.

Most underweighted asset class overall: High yield

Seeing better opportunities elsewhere, banks are either underweight or neutral on fixed income, with BNP Paribas being the exception. Within fixed income, high-yield was the most underweight sub-asset class. Emerging market bonds saw hints of optimism amid otherwise cautious sentiment.

Being underweight in developed market high-yield, UOB observed an asymmetric risk-reward profile, with unfavourable sector mixes. For emerging market bonds, the bank sees company-specific risks on balance sheets, making selectivity key. LGT is underweight emerging market bonds due to historically low credit spreads. Morgan Stanley, Standard Chartered and Barclays are overweight emerging market bonds, given improving macroeconomic outlooks.

As the only bank overweight in fixed income, BNP Paribas is specifically overweight in investment grade in Europe and the UK, with a focus on quality.

Hedge funds lead returning alts optimism

After a quarter of being broadly neutral towards alternatives, banks showed more constructive outlooks for the asset class in 3Q26, with hedge funds gaining the most optimism. Regarding private markets, most banks that expressed a view were overweight on private equity and neutral on private credit, while keeping an eye on manager selection.

Hedge funds gained popularity amid sticky inflation, more active fiscal policy, and weakened stock-bond diversification. HSBC and DBS believe hedge funds can serve as good portfolio stabilisers. Echoing this, APB‘s Alts Barometer conducted in July 2026 also found that hedge funds and liquid alts were the sub-asset classes making up the largest portion of private bankers’ and wealth managers’ alts books.

Overweight private equity and neutral private credit, Morgan Stanley noticed attractive entry points due to decreasing growth valuations. It favours companies transitioning to service-as-software, and strategies focused on loss avoidance rather than yield-seeking ones.

Gold sentiment wavers

The bullish sentiment on gold dropped slightly, but most banks still held a positive outlook. J.P. Morgan is overweight gold, but lowered its gold outlook. It maintains its constructive medium-term view, believing gold can move higher. With a similar view, HSBC anticipates greater volatility from rising retail participation, but noted that continued central bank buying and ETF flows provide support.