5 January 2026
Written by Amirudin Hamid, Chief Investment Officer of GAX MD
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Key Takeaways
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• Geopolitical tensions and broad tariff shocks are subsiding, actively reducing global market risk and increasing stability.
• The AI focus is shifting from chipmakers to infrastructure (data centers, utilities) and integrated leaders like Alphabet, which is poised to become the new sector anchor.
• The US midterm elections are expected to curb policy volatility. Combined with moderating inflation and a supportive interest rate outlook, this creates an optimal environment for diversified portfolio returns

1. Geopolitical De-escalation and Trade Normalisation‍

‍The global environment entering 2026 appears more stable than the volatility that defined 2025. Several major sources of geopolitical and trade stress are easing, improving the backdrop for global markets.

Trade Policy Shifts
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‍The implementation of the Global Tariff and the Big Beautiful Bill in President Trump’s second term achieved most of the administration’s primary objectives. While the Global Tariff triggered the steepest equity sell-off of 2025, the policy impact is now moderating.

The administration has begun to move away from broad, across-the-board tariffs toward more selective adjustments. Rising domestic inflation has prompted policymakers to roll back tariffs on goods that are not produced locally. The removal of tariffs on Brazilian food imports on 13 November 2025 is a clear signal of this shift. More exemptions are expected in 2026 as the administration seeks to ease domestic prices and temper the inflation concerns triggered by earlier tariff actions.

Malaysia has also benefited directly from this recalibration. During the ASEAN Summit in October 2025, the US agreed to zero-tariff treatment for Malaysia’s aerospace, electrical and electronics, and pharmaceutical exports.

A More Stable Global Landscape

‍Although geopolitical risks are never eliminated, the number of active flashpoints heading into 2026 is significantly lower than in 2025. Last year saw multiple new conflicts emerge, including tensions between Thailand and Cambodia, India and Pakistan, and the renewed Israel–US vs. Iran standoff, on top of ongoing conflicts in the Middle East and Ukraine.

For 2026, the only major new potential conflict we are monitoring is the US-Venezuela situation. Should this escalate, market volatility is likely, but the economic impact would be limited given that Venezuela is already heavily sanctioned. Crude oil prices may experience short-term upward pressure due to Venezuela’s export role, but the overall effect on markets should be manageable.

With fewer active conflicts compared to 2025, the geopolitical risk premium in global equity valuations should be lower in 2026 compared to 2025.

2. The Next Phase of AI Investment‍

‍Artificial Intelligence remained the central market driver throughout 2025. Major US and international technology companies reported strong earnings and raised capital expenditure plans for AI and cloud infrastructure. The scale of investment has expanded rapidly, highlighted by the US$300 billion, five-year agreement between OpenAI and Oracle.
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The AI trade is not ending. It is broadening. During 2024 and 2025, the primary beneficiaries were chipmakers supplying Graphics Processing Unit (GPUs) and high-performance memory. In 2026, market attention is likely to shift downstream to the companies that operate and support the broader AI ecosystem. These include data centre operators, cloud service providers, and utilities that supply the energy needed to run AI infrastructure.
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‍Rising power and water usage is the biggest impact from this trend. A study by the Electric Power Research Institute in 2024 projected that data centres could consume between 4.6% and 9.1% of all US electricity by 2030. This implies electricity demand growth of up to 15% annually through 2030, compared with only 3.7% annualised growth prior to the release of ChatGPT.

Projected Electricity Consumption of US Data Centers: 2023–2030‍

Source: Electric Power Research Institute: Powering Intelligence: Analyzing Intelligence and Data Center Energy Consumption.

Water consumption is also increasing. According to a June 2025 study by the Environmental and Energy Study Institute, a medium-sized data centre can consume approximately 110 million gallons of water annually for cooling, while large facilities can use up to 5 million gallons per day. Water Market Insider projects a 170% increase in US data centre water consumption between 2023 and 2030.
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This positions utilities, renewables, data centers, and infrastructure as the structural winners of the next AI phase‍

US Water Use Forecasts Due to Artificial Intelligence (AI)‍

Source: 2Q 2025 report: Water Market Insider, July 2025

OpenAI IPO: A Potential Market Catalyst for AI Sector in 2026‍

The potential listing of OpenAI is widely viewed as one of the most significant market events that could take place in 2026. Although the company has not issued any official statement, speculation has intensified that it may pursue an Initial Public Offering to secure the large amount of capital required for its current commitments and future growth.

A major driver of this expectation is the scale of OpenAI’s agreement with Oracle, which totals USD 300 billion over five years. This implies an annual expenditure of approximately USD 60 billion. By comparison, OpenAI has raised only USD 48.97 billion since its founding. The gap between existing funding and future obligations underscores the need for substantial new capital, which an IPO is uniquely positioned to provide.
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If OpenAI proceeds with a listing, it is likely to command a premium valuation given its leadership role in foundation models, enterprise AI adoption, and agentic AI development. A successful IPO would not only secure the funding required to maintain its competitive edge, but could also act as a catalyst for the broader AI sector by lifting valuations across companies involved in AI infrastructure, software, and semiconductor supply chains.‍

3. The Rise of a New “King” in the AI Sector‍

In 2025, Nvidia reached historic milestones, becoming the first company to achieve market valuations of US$4 trillion and later US$5 trillion. Its dominance in Graphics Processing Units (GPUs) placed it at the centre of the AI boom. However, the competitive landscape has shifted rapidly.

Alphabet, through Google, has significantly advanced its Tensor Processing Units (TPUs), which are now fully competitive with Nvidia’s GPUs for AI data centre applications. Reports also indicate that Meta Platforms is evaluating TPUs for future deployment, highlighting their increasing relevance.
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Following a major correction in Nvidia’s share price, concerns emerged that the entire AI sector could be at risk of a broader pullback. We take a different view. Rather than signalling the end of the AI cycle, current trends suggest a rotation in leadership. Alphabet stands out as the strongest candidate to lead the next phase of AI and technology innovation. While OpenAI initially held a first mover advantage after the launch of ChatGPT in 2022, Google demonstrated substantial strength throughout 2025, particularly in agentic AI. This shift was underscored by the reported "Code Red" memo issued by OpenAI’s CEO on 1 December 2025, urging teams to accelerate innovation to keep up with competitors.

Alphabet’s ecosystem is broad and durable. Its competitive advantages span Search, Cloud Computing, Android, autonomous vehicles via Waymo, and now data centre grade AI chip development. Investor confidence in its long-term positioning was evident in its 13.87% share price gain in November 2025 during a period when the broader technology sector experienced widespread selling.‍

4. US Political Landscape: A Potential Tailwind‍

The United States faces a significant political event in 2026 with the midterm elections approaching in November. The unexpected victory of Zohran Mamdani in the 2025 New York mayoral race signalled a shift in voter sentiment and suggests that the incumbent party may encounter substantial headwinds. With all 435 House seats and 35 Senate seats up for election, the Republican Party’s thin majorities in both chambers are vulnerable. A shift in congressional control would introduce stronger checks and balances.

Although midterm elections do not change the presidency, a divided government would limit President Trump’s ability to pursue large scale reforms, such as major tax cuts or new spending programs. This potential gridlock could be viewed positively by investors because it reduces policy uncertainty. The volatility seen in 2025 due to sudden policy changes has heightened the market’s preference for stability.
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Another potential source of market stability is the Supreme Court’s upcoming ruling on the legality of reciprocal tariffs. Tariffs have been a major driver of volatility, so a decision restricting unilateral tariff action would be welcomed by markets. It would improve trade predictability and provide greater stability across global supply chains. Taken together, a more balanced political environment and a possible judicial check on aggressive trade policy could serve as meaningful tailwinds heading into 2026.‍

5. Limited Impact of Monetary Policy on the Market‍

The term of Federal Reserve Chair Jerome Powell is expected to conclude in May 2026. His potential replacement is likely to be a candidate nominated by President Trump who is more supportive of deeper and faster rate cuts. However, interest rate decisions are determined by the Federal Open Market Committee (FOMC), which votes through a 12-member panel rather than through the Chair alone. Even if Powell is replaced as Chair, he retains the option to remain on the Federal Reserve Board until 2028. This allows him to continue as a voting member, providing a moderating influence if pro Trump nominees push for a more aggressive easing cycle.

By 2026, the rate cut cycle will enter its third year and market expectations remain modest at two to three cuts. Much of the remaining inflation pressure is tied to the global tariffs imposed in 2025 under the Trump administration. These tariff shocks tend to create one off price adjustments that gradually fade from year over year inflation readings unless there are new supply chain disruptions. As such, inflation was already expected to peak before becoming a less significant concern in 2026.
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The latest policy update on December 9, 2025, which introduced another 0.25% rate cut, reinforces this view. During the press conference, Powell explicitly attributed the inflation overshoot to tariff driven price distortions. He noted that with the recent easing of certain tariffs, inflation in goods is likely to peak in the first quarter of 2026, provided that no major new tariffs are introduced. This assessment is consistent with the Fed's Summary of Economic Projections, which indicates core inflation cooling to 2.5% by the end of 2026 compared with the current 3%. Powell's remarks therefore validate the earlier expectation that inflationary pressures are mostly transitory, heavily tariff driven and already approaching their turning point.

A continuation of rate cuts could extend the weakness in the US Dollar, similar to the pattern observed in 2025. For Malaysian investors, this remains a meaningful headwind for US bond holdings because forex losses may offset gains in underlying bond prices. In contrast, the currency drag on equities is typically less severe because large US companies derive a significant portion of their revenue globally, which provides a natural hedge against currency movements.

Malaysian Ringgit Strength: A Cyclical Opportunity

The Malaysian Ringgit was one of the strongest global currencies in late 2025, creating a temporary drag on MYR-denominated returns. This effect is translational rather than fundamental because the underlying US Dollar assets continued to perform.

Historically, Ringgit strength has been cyclical, while the US Dollar has remained structurally dominant as the world’s reserve currency. For long term investors, periods of Ringgit strength have often provided attractive entry points into global assets. This is especially valuable for sectors such as AI, cloud infrastructure, and renewable energy, which offer significant growth opportunities but remain limited in the domestic market.

Conclusion

Market performance over the medium to long term is primarily driven by earnings growth and changes in the risk premium. For 2026, both factors appear supportive, pointing the market toward a higher trajectory.

A key driver of earnings growth is the continued expansion and evolution of Artificial Intelligence (AI). While chipmakers dominated the earlier phases of the AI cycle, the next phase is expected to broaden toward infrastructure-based beneficiaries such as data centre operators, cloud platforms, utilities, and water infrastructure providers. Electricity demand from data centres is projected to grow as much as 15% annually through 2030, while water usage for cooling large facilities is also rising sharply. These structural pressures are fuelling a multi-year investment cycle in renewable energy, grid upgrades, and water management systems. This development directly benefits MYTHEO’s Essential, ESG, and Inflation Hedge portfolios, which hold exposure to clean energy, utilities, infrastructure, and water-related assets that stand to gain from sustained AI-driven demand.

Although Nvidia’s recent share price correction has led some investors to question whether the AI rally has peaked, we view this as a rotation rather than a reversal. The maturing of the AI ecosystem is creating room for new leaders to emerge. Based on current market trends, Alphabet appears poised to become the new anchor for the AI sector. Its exposure is more diversified and defensively valued, supported by an ecosystem that spans cloud computing, data-centre-grade AI hardware, mobile operating systems, and agentic AI capabilities. As Alphabet gains share in AI infrastructure and strengthens its competitive position relative to Nvidia and OpenAI, it is increasingly well positioned to drive the next phase of sector performance. MYTHEO portfolios already hold meaningful exposure to Alphabet through our US growth, ESG, and Shariah-compliant ETFs, providing both downside resilience and potential for outperformance if Alphabet continues to build momentum.

The second pillar supporting a higher market trajectory is the expected reduction in the global risk premium heading into 2026. Several factors contribute to this trend. In fixed income, moderating inflation and the prospect of further interest rate cuts create a favourable backdrop for bonds, benefiting MYTHEO’s Income portfolio. Precious metals, which performed strongly during the uncertainty of 2025, retain important catalysts such as a lower interest rate environment, continued central bank accumulation, and a soft US Dollar, even though reduced geopolitical risk has removed some of the earlier tailwinds.

MYTHEO’s globally diversified, USD-based model provides additional structural advantages for investors. It offers access to high-growth sectors, broader economic cycles, and the stability associated with the world’s reserve currency. Global diversification enables exposure to AI, cloud computing, upstream semiconductors, renewable energy, and critical utilities, opportunities that are limited when investing solely within a single domestic market. With the rise of new AI leaders such as Alphabet and the continuation of strong tailwinds in energy and water infrastructure, MYTHEO portfolios are well positioned for the next leg of global market performance in 2026.

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