【GQ Wealth】Investing When Old Assumptions No Longer Hold

Until recently, investors relied on familiar assumptions. Inflation would fall back towards target. Central banks had room to support markets when growth weakened. Bonds would protect portfolios when equities came under pressure.

By Hou Wey Fook

Those assumptions are now being tested. The past two years have exposed a widening gap between political expectations and policy outcomes. Instead of lower geopolitical risk and greater fiscal restraint, investors are observing higher defence spending, wider fiscal deficits, and more persistent inflation pressure. Middle East tensions have also raised the risk of higher-forlonger energy prices, with oil supply vulnerabilities becoming more evident. Inflation changes how portfolios behave. In a low-inflation world, equities provide growth, while bonds provide income and diversification. In a more inflation-prone regime, that relationship can weaken. When inflation concerns push bond yields higher, both equities and bonds can come under pressure. That is why the traditional 60/40 portfolio is being challenged. The model still has value, but the balance between growth and diversification may no longer function as reliably as before. A portfolio built for yesterday’s conditions may not be enough for today’s risks. The drivers are not limited to energy.

Artificial intelligence is also playing a role. Over the long term, AI may bring productivity gains. But the current phase is capital-intensive, requiring data centres, semiconductors, hardware, software, and significant electricity consumption. This makes AI a potential near-term inflationary force as infrastructure demand rises while supply remains constrained.

China’s gradual move away from deflation is another factor. As price pressures stabilize and commodity input costs rise, global disinflationary forces may weaken. Taken together, energy, AI infrastructure, fiscal expansion, and geopolitical risk suggest investors should be careful about assuming inflation will fade quickly.

Central banks appear to be responding. Major central banks, including the Fed, ECB, and BOE, have shifted towards more hawkish or neutral positions, while market pricing has begun to reflect the possibility of rate hikes by year-end. This does not mean rate hikes are certain. It means investors should not assume policy easing is the default outcome. The investment implication is clear: selectivity matters more.

In equities, top-down country allocation may be less important than bottom-up stock selection. The rally has been narrow and led largely by AI-related names. Momentum can continue when supported by earnings, but investors should not mistake momentum for broad market strength. A balanced approach may pair AI exposure with sectors less exposed to technology, while favouring businesses with lower energy intensity. The discipline is not unlike building a serious watch collection. Value is rarely found in abundance. It lies in quality, provenance, scarcity, and the ability to endure beyond the current season. Portfolios require the same discipline.

In fixed income, selectivity is also essential. If inflation remains elevated and bond yields are skewed to the upside, investors should focus on quality issuers with strong fundamentals and the ability to repay debt. In corporate credit, we maintain a preference for short-to-medium duration for bond portfolios. Within EM, selectivity remains critical, favouring markets that possess: (1) energy independence, (2) policy credibility, and (3) adequate risk compensation.

Alternatives also have a larger role. A constructive stance on gold remains warranted despite mediumterm inflation headwinds, supported by de-dollarisation and monetary debasement. Hedge funds may serve as portfolio stabilizers as traditional stockbond diversification weakens. In private markets, widening dispersion reinforces the need for high-quality managers and resilient assets.

At the same time, the world is entering a new capex supercycle, driven by AI and energy. Hyperscalers are spending heavily as compute demand exceeds supply, while sovereign AI initiatives add strategic urgency. In energy, underinvestment and renewed security concerns are driving capex across the value chain.

Attractive opportunities may lie in “pick-and-shovel” beneficiaries: semiconductor ecosystems, networking, specialised hardware, and oil services and equipment providers. These may not be the most visible names, but they are essential to the infrastructure being built.

Investors do not need to retreat from risk, nor should they assume every portfolio requires wholesale reconstruction. The practical message is that portfolios should be reviewed for a different regime: one where inflation is more persistent, geopolitics matters more, energy security is central, and capital investment is rising. Resilience is built before volatility arrives. Investors who understand that will be better placed for the investment landscape now taking shape.