2026 Investment Outlook: Resilience and rebalancing

Hello everyone, welcome to our last edition, as we wrap up another eventful year.

Just to quickly recap some of what we discussed over the year - we started off by assessing an illustrative asset allocation by incorporating the most updated set of capital market assumptions and looked at what asset classes can help further diversify and improve the portfolio - while managing capital considerations. We then highlighted how a multi-alternatives approach can be a reasonable way to build up diversified private markets exposures. But also highlighting to our keen readers that we can potentially generate efficiencies even within existing public asset class exposures.

So we end this series by providing a broad outlook – challenges, obviously, are ever present – yields as well as spreads have moderated, equities have done well, but headwinds remain, private market asset strategies continue to appear reasonably attractive, but rigorous analysis remains key. And then of course, there are changing regulations globally that means portfolios need to be closely monitored and impacts carefully assessed.

As always, we hope the newsletters and topics covered will help in the design and management of insurance portfolios amidst a constantly evolving landscape.

Best Wishes and see you all in 2026.

Hello everyone, welcome to our Asia Pacific ETF podcast.

I'm Christine Huang, Head of ETF Business Asia Pacific.

Today I'm joined by Paul Jackson, Global Head of Asset Allocation Research at Invesco EMEA.

Paul, thanks for joining with us.

How are you today?

I'm great.

Thank you, Christine.

Really nice to see you again cause I know you have to do a lot of traveling recently.

So where have you been very recently?

I've been to Scandinavia, so to Stockholm and Copenhagen.

Unusually warm for this time of year.

Before that I've even been to the Isle of Man where for anybody who is a fan of motorcycle racing, it's where the TT race happens every year.

But I'm in the middle of a global tour.

So you have been seeing a lot of global investors I believe. What are the moods for the investment today?

I would say everybody has enjoyed 2025.

It's been a very good year.

I would say that the mood is kind of mixed.

I think most people are quite optimistic, but there is some caution after seeing such strong performance.

There's obviously a lot of questions about the US. I think the US market, US equities have been the mainstay of many portfolios for some time, but there are increasing questions about that.

On the other hand, I'm detecting more interest in emerging markets and particularly in Chinese equities than I've seen for some time.

Yes, for this region, China is quite important market for most of people's portfolio.

We have seen the strong rebound on the China market both on mainland and the Hong Kong stock markets. What factors have been driving this recovery?

Well, first of all, it, it has been an incredible rebound.

If you look back to the end of 2023, MSCI China is up 60% and at the same time MSCI USA is up 42%. (Source: MSCI, LSEG DataStream and Invesco Strategy & Insights, date of the recording: 19 November 2025 )

So Chinese stocks had been outperforming really for the last two years.

And I think there are a number of factors behind that.

First of all, at the end of 2023, Chinese stocks were actually really good value.

The cyclically adjusted PE ratio.

So that's price divided by a 10 year moving average of earnings had fallen to 12, which is the same level to which the US market fell in March of 2009 when if you remember the S&P 500 bottomed at 666.

Today it's more like 6,666.
(Source: LSEG DataStream, date of the recording : 19 November 2025)

So when you get those sorts of extreme valuation points, it very often points to future strong performance.

The second factor I think is economic performance.

There is lots of doubts and I think concern about the performance of the Chinese economy, but actually 5% GDP growth, which is what we've been seeing, is I think pretty good in an economy where the population is shrinking.

So if you look at it on a GDP per capita basis, China has been growing more rapidly than India since the end of 2019.

And finally, the Chinese authorities have been encouraging the purchase of stocks.

For example, financing has been made available for share buyback schemes.

Some funds have been encouraged to buy equities.

So that combination of good valuations, steady economic performance and more incentives to buy equities, I think taken together, that explains why the market has been so strong.

The Chinese government continues to prioritize technology called innovation, highlighting sectors such as artificial intelligence, robotics, automation and the electric vehicles.

These are the key growth drivers in China as far as we can see. In your view, how competitive is China in the global technology landscape?

Well, I think it is actually pretty competitive.

I'm always amazed when I go to China, even just the day-to-day usage of technology, I find it to be much in advance of what I see in Europe or the US or other parts of the world.

But thinking about it from an economic perspective, if China is going to continue to see growth in income per capita, then it clearly needs to move up the value added chain.

And this is what it's been doing for a number of decades.

And that now means that they have to move into higher tech sectors.

And we've seen evidence of that, for example, in the solar panel industry, which is where I first noticed this, that China has now reached this dominant position in global, in the global solar panel sector.

We're also seeing it now in electric vehicles.

And China, I think has reached or is reaching A dominant position in the global EV market.

And bit by bit, I think they will get to very competitive positions and sometimes dominant positions in a broader range of higher tech sectors.

So I think this is a natural progression and I think over the next 10 to 20 years we will see China being more dominant.

So you have shared a very positive outlook on China market as was a China technology development.

From a broader perspective, how may shifting US, China trade dynamics impact China technology sector and its long-term global competitiveness?

Well, I think first of all I prefer trade not to be restricted.

I think that we all benefit from free trade rather than restricted trade and trade restrictions damage not only the US economy but they do damage partner economies.

Specifically on the question about technology, China has obviously had limits imposed on it in terms of the supply of high performance microchip semiconductors, for example.

There's restrictions on those chips coming into China from US suppliers.

So short term, I don't like these restrictions, but I think longer term China will come out of it in a good place.

Thanks for your valuable insight.

China Index based ETF gives investors A straightforward way to tap into China's growth story by tracking a basket of leading companies.

And all these ETFs offer a global investor the benefit of diversification, efficient access to both onshore and offshore growth themes, while maintaining the flexibility, liquidity and the transparency that ETFs are known for.

At Invesco, we provide globally listed ETF that target exposure to China technology sector.

Explore our website to learn how you can position your portfolio for China's next wave of innovation.

Stay tuned for more from Invesco's podcast, where we continue to share invaluable investment insights in the future.