00:00Principal Asset Management's Seema Shah says that moving into 2026, the same forces that underpinned
00:06last year's growth, strong household and corporate balance sheets, agile policy responses and
00:11accelerating AI investment are reshaping the macro landscape in significant ways. Seema joins us now.
00:17So Seema, we talk about some of those driving forces. Do you see them waning or picking up steam
00:22in 2026? So they actually stay fairly consistent for this year, for 2026. There's a couple of
00:29changes. So we are expecting the household balance sheet to stay pretty strong. Corporate profit
00:33margins are at cycle high. So that's providing this cushion. Now, we know that that's at the
00:38surface level, particularly in the household balance sheet side, because we keep hearing about
00:41the K-shaped economy. And certainly from the Trump administration's side, that will be, I think,
00:45a key focus for 2026. So there could be some deterioration. There could be some strains for
00:51those lower income earners in terms of the way that they spend the magnitude of their spending.
00:56Thankfully, we should have, well, we will see the government fiscal stimulus coming through with
01:00the one big, beautiful bill having a nice bit of injection, cash injections almost for households,
01:06as well as pushing down the effect of corporate tax rate for corporates in 2026. So those are the kind
01:12of the new things that are coming through. And then, of course, there's a very, very important pillar,
01:16which is relatively new, which is AI CapEx. And we're not really seeing any clear signs
01:20that there's going to be a meaningful slowdown. So as we're looking through to 2026,
01:25this is still a really constructive macro backdrop, ideally with less policy uncertainty
01:30that will shape in part of the first half of this year.
01:33This constructive macro backdrop, that definitely appears to be the consensus. People are really
01:38looking ahead to 2026 and saying that they see more of the good stuff, more of the tailwinds
01:43that we got in 2025. How much of this is all priced in? I mean, is the best scenario priced in right now?
01:49You're right. So this is very much a consensus view. It's almost a struggle to find anyone who's
01:55very, very negative about the growth outlook. They're kind of the key risk, which is sometimes
01:59being flagged. But I don't think with any significant conviction, it's really around
02:04inflation. What questions around are we underpricing the risk that inflation is going to take up?
02:11We're not seeing any clear signs of that. But we do admit that that is a risk, particularly when
02:15we're coming off the back of tariffs. And we're ultimately just looking for how companies are
02:19going to be behaving in the first two quarters of next year. The other big risk, of course,
02:24is going to be around AI. And we have seen that narrative shift where there's more and more
02:29questions. So I'd expect that every earnings season will be looking for proof of delivery.
02:33Really, are these companies delivering on these expectation earnings? And can they continue
02:38to reassure concerns from investors that there is a bubble building up? So we think that they will
02:45prove, I guess they will continue to deliver on those earnings. But I do expect that caution,
02:51that concern to persist through 2026.
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