2026 Investment Outlook: Resilience and rebalancing

We anticipate economic growth to pick up modestly, driven by central banks cutting interest rates and governments providing targeted stimulus. But even a modest improvement in growth can have meaningful implications for financial markets.

A reacceleration in economic activity, supported by monetary and fiscal policy, creates an opportunity for investors to diversify — which may be particularly welcome given investor concerns that tech stocks may be expensive and that they’ve been dominating the returns of traditional, market-cap-weighted indexes.

Investment opportunities: In our view, diversification opportunities include investing in cyclical sectors as well as smaller capitalisation and value-oriented stocks.

We expect central bank easing to broadly continue in 2026, but with some important points of divergence.

• Some European central banks appear close to, or at, the ends of their easing cycles. We believe the European Central Bank is unlikely to cut further next year.
• Any further easing from the People’s Bank of China is likely to be limited, in our view, but other emerging market nations have more room to cut rates further.
• The US Federal Reserve has some catching up to do. Absent a resurgence in the jobs market, we expect around three to four cuts in 2026.
• The Bank of Japan is the one major central bank that we expect to raise rates (likely twice) before the end of 2026.
• We expect this divergence to continue weakening the US dollar. We see scope for strength in the euro, Japanese yen and EM currencies.

Investment opportunities: In our view, dollar weakness should support emerging market and commodity-related assets, and improved global activity should offer some support to industrial commodities, too. Precious metals also tend to benefit from a lower US dollar and lower policy rates, but fading geopolitical risks may take some of the steam out of the recent rally.

Investors are questioning whether the artificial intelligence investment boom is becoming overdone, and whether we are in a bubble. To date, much of the data centre build-out has been financed with existing cash and operating cash flow. But we have started to see recent signs of concern emerge, such as the use of debt and complex equity investments and vendor financing deals.

At this stage, we think the AI investment theme can continue, however, we favour rebalancing portfolios to navigate growing concentration and valuation risks.

Investment opportunities: We believe there are AI opportunities that have more attractive valuations, particularly Chinese technology stocks. Also, the AI theme can play out along other angles. For example, companies that adopt AI may see cost efficiencies or new product offerings. Finally, strategies that broaden exposure beyond traditional market-cap-weighted approaches may be a prudent way to mitigate the risk of overexposure to a few of the largest AI-driven names.

Emerging market (EM) equities posted outsized returns in 2025, and we believe there are continued catalysts for that outperformance to continue in 2026.

• Chief among them is the anticipated weakening of the US dollar, which we expect would benefit EM stocks.
• Rate cuts in the US also create room for EM central banks to continue lowering rates, supporting domestic demand and equity markets.
• Many EM economies are expected to outpace developed markets in gross domestic product growth, driven by favorable demographics, rising consumption, and investment flows.
• Moreover, EMs are poised to benefit from the global buildout of artificial intelligence infrastructure. China is investing heavily in AI and related technologies, which could serve as a powerful engine for equity market performance.

Investment opportunity: We expect Chinese stocks to continue to perform well in 2026 as policymakers want to see better shareholder returns alongside targeted support for key competitive industries.

We believe private credit remains an attractive option for those seeking diverse sources of income beyond traditional credit. Base rates remain above their pre-pandemic levels,  and an improved outlook for both the underlying real estate and cash flows of middle market borrowers should allow for private credit to perform well into 2026, in our view.

Investment opportunity: A more benign risk environment, better growth, and stable inflation, coupled with easier US monetary policy, are typically conditions where private credit has performed well.