By Daniel Pechon.
Tailor your asset allocation to the new geopolitical data, diversify your portfolio consistently with a continued weighting in US technology stocks, but also in South-East Asia, and focus on Europe (financial stocks, defence, small caps, etc.).
"More Bull than Bubble”...
"In equities, we continue to prefer the US to Europe. It is true that valuations across the Atlantic are high, with a price/earnings ratio of 25, well above its historical average. But there are good reasons for these high valuations. The rise in share prices was accompanied by an increase in earnings per share. The market has done its job. The fundamentals are still sound. We are convinced that artificial intelligence will remain the central theme, at the top of the list," explains Laurent Denize, Co-Director of Investments at ODDO BHF. AI will remain a central theme in 2026, with productivity gains and growth dispersion beginning to spread to other market segments. "With an estimated 15% increase in profits in 2026, we remain focused on tech. However, we need to keep a close eye on the hyperscaleers, in terms of debt," he adds. Oracle , the most problematic to date, remains in the eye of the storm.
No bubbles..
And to further dispel rumours of a bubble in artificial intelligence stocks, Laurent Denize offers a hint, an observation: "in the past, in the year before a bubble bursts, markets have accelerated violently. To date, we're still a long way from that scenario.
During the dotcom bubble, from September 1999 to March 2000, just a few months before it burst, the Nasdaq 100's rise accelerated, taking on an ultra-speculative dimension. After rising 89% in 1999, the Nasdaq 100 climbed a further 20% until 10 March 2000, the market peak before the bubble burst and prices began to plummet..
Away from this scenario, accommodative financial monetary conditions will provide further support for the current market.
Southeast Asia takes centre stage
For ODDO BHF's specialists, South East Asia is also a must for capturing the value created by technology companies. The discount between emerging markets and the US market is 40%. Given their potential to catch up, the emerging countries - and South-East Asia in particular - are set to shine, benefiting as they do from cheap labour and access to raw materials. For example, South Korea, which has not yet been caught up in the AI frenzy despite an index that includes a number of technology stocks, is a good choice, as is India, with tech accounting for 8% of the index despite a lacklustre performance in recent quarters. China remains on ODDO BHF's radar screen. "We became favourable to the Chinese market 18 months ago and we remain so With a mastery of the value chain, such as for rare earths, and the benefit of a cheap electricity supply (to data centres), the Chinese market still has potential.
In Europe, we should not expect strong growth in corporate profits on the old continent. In 2025, the rise was based, among other things, on an increase in multiples. And on the basis of the current P/E, we are starting to be a little expensive on the large stocks, particularly exporters, according to the ODDO BHF specialist. With an estimated increase of 12%, analysts' expectations for European corporate earnings appear ambitious in the eyes of Laurent Denize, "At Oddo BHF, we are below these market expectations, at around 6 to 7%"
Small, better than big
However, European small caps may be back in the black. The sector's lacklustre growth had made small-cap managers very sceptical. But there's a change of scenery and dimension today. The earnings per share growth of these small caps will be higher than that of the large caps, with valuations that have been depressed for many years, making them even more attractive.
Favouring exposure in Europe but domestically makes sense, including financial stocks. "I believe that European financials can still climb, despite their record growth in 2025. It's not impossible that this sector will add another 20%," says Laurent Denize. Return on equity rose significantly, with loans at higher rates.
It should also be noted that the demand for electrification is a springboard for community services.
With geopolitics in the background, the old continent's defence sector should once again be in favour, with the advantage of Europe's absolute need to take its defence into its own hands. "In our view, valuations remain fair. However, half of the managers disagree with us, believing that the sector is richly valued after the rise of 2025. This scepticism reinforces our positive view of defence values..."
Gold, an alternative to currencies..
To sum up, in terms of allocation, ODDO BHF believes that we need to focus not only on US technology, but also on South-East Asia, be more domestic in our European choices, and keep an eye on geopolitical developments, such as value creation in Argentina and the melting of the risk premium on Venezuelan bonds. And keep in mind that the risks cited in 2025 have not disappeared..
Debt can become a problem with the debt trajectory. If the yield on the US 10-year were to rise above 4.5%, or even approach 5%, bonds would become the preferred diversifier, with yields that would compete with equities.
Last but not least, gold should not be forgotten in view of the ongoing de-dollarisation, a weak dollar and geopolitical risks. And with the advantage of providing diversification. Just like other precious or industrial metals, particularly copper. Oil could surprise with a rebound..
