Markets have largely shrugged off geopolitical risks as artificial intelligence-driven earnings growth and expectations of moderating inflation continue to underpin investor confidence, according to BNP Paribas Asset Management.
In a market outlook, chair of the investment institute and chief investment officer for AXA IM Core at BNP Paribas Asset Management, Chris Iggo, said investors had remained focused on corporate earnings and the AI investment boom despite months of conflict in the Middle East.
“The current peace deal may be fragile, but markets need it to be genuine. If inflation and interest rate risk moderates, bond returns could potentially be sustained at a healthy level, and equities could continue to be driven by earnings exuberance,” Iggo said.
While higher energy prices had raised concerns that inflation would remain above central bank targets and prompt further monetary tightening, equity markets had quickly moved beyond the initial geopolitical sell-off earlier this year.
Instead, AI enthusiasm continued to dominate investor sentiment, with technology companies attracting substantial capital to fund expanding infrastructure requirements.
“The Nasdaq index is up 22 per cent since the end of March. The Korean and Taiwanese markets are up by 73 per cent and 44 per cent, respectively,” Iggo said.
“There seems no end in sight to the euphoria around AI, driven by tech companies’ huge capital expenditure. But that capex needs funding, and markets appear to be ready and willing to provide it.”
The report highlighted several examples of investor appetite for AI-related assets, including Nvidia’s bond raising and the SpaceX initial public offering, which raised US$75 billion and briefly lifted the company’s market capitalisation to almost US$3 trillion.
“Investors are willing to bet on AI’s economics being massively improved by building data centres in space,” Iggo said.
BNP Paribas Asset Management said the supportive backdrop extended beyond technology, pointing to stronger-than-expected economic data in both the US and Europe.
Consensus forecasts for 12-month forward earnings per share had increased by 20 per cent for the MSCI World Index in 2026 and by 21.4 per cent for the Nasdaq Composite, while improving manufacturing activity and resilient employment had reduced fears of a global recession.
The firm said easing inflation and lower interest rate expectations could provide an additional boost for both credit and equity markets, particularly if declining energy prices support stronger growth in Europe.
Even so, Iggo cautioned that several risks could emerge during the second half of the year.
“There will be things to consider for the second half of the year,” he said.
He said investors would be closely watching whether central banks delivered further rate increases, warning that higher yields could weigh on both fixed income returns and equity valuations.
Questions also remained over whether elevated AI company valuations could be sustained if expected profits failed to materialise.
Climate-related disruption from El Niño and the outcome of the United States mid-term elections were also identified as potential risks that could affect inflation, policy settings and market sentiment.
“Markets would welcome that after tariffs, fiscal largesse, and geopolitical confrontation. Perhaps the United States’ 251st year might be a bit calmer,” Iggo said.
