Global growth is improving, boosting cyclical assets and supporting stronger non‑US opportunities.
Diverging central bank policies require selective positioning across credit and fixed income segments.
Model allocation favours non‑US equities, commodities, bank loans and AAA-rated Collateralised Loan Obligations (CLOs).
In the latest update of our quarterly Big Picture report, Paul Jackson, Global Head of Asset Allocation Research, shares his Global Asset Allocation Outlook for 2026. He outlines how an improving global economy, easing financial conditions and shifting policy dynamics are shaping opportunities across regions and asset classes.
Global momentum is building as financial conditions ease, real wages rise, and economic signals turn more supportive pointing to a mid investment - cycle upswing that favours cyclical assets such as non‑US equities, industrials and resource‑linked sectors.
US asset valuations remain elevated, while international markets especially Europe, Japan and emerging markets, could offer more attractive entry points and greater sensitivity to improving global growth. A weaker US dollar further supports non-US markets and commodities.
We continue to favour cyclical assets, with non‑US equities, bank loans, AAA‑rated CLOs, REITs, and commodities scoring highest on valuation, momentum and cyclical sensitivity.
Government bonds and investment‑grade credit remain underweight, as long‑term yields are expected to drift higher and offer limited upside. High yield stays neutral, supported by improving growth but with tight spreads warranting selectivity.
Within equities, Europe, Japan and emerging markets are preferred due to more attractive valuations and stronger cyclicality versus the US, where high valuations constrain potential returns. Short‑duration, low‑volatility instruments such as bank loans and AAA CLOs remain appealing for diversification and yield resilience, helping balance exposure to risk assets.
The global economy is expected to accelerate in 2026, driven by monetary easing across major economies, supportive fiscal policy in regions like Japan and Europe, and rising real wages. Leading indicators across markets point to strengthening activity.
Inflation is trending lower across most regions, helping sustain financial market performance—a key driver of last year’s returns. However, energy prices linked to geopolitical tensions remain a risk.
But the policy backdrop is mixed, central banks are diverging:
Fiscal trends are similarly varied, Japan is leading with expansionary measures, while the US and UK are set for more restraint. This mixed backdrop reinforces the need for selectivity across fixed income and currency exposures.
Asset allocation is the process of dividing an investment portfolio among different asset classes, such as stocks, bonds and cash and so on. Bonds generally tend to be ‘safer’ investments than stocks and are, for example, seen as more defensive. Assets are allocated based on economic and monetary expectations.
Spreading the risk and number of potential opportunities across various asset classes, such as equities, fixed income and commodities. The aim of diversification is to reduce the overall risk of the portfolio.
Central banks can ‘tighten’ policy by raising interest rates. This is done to curb inflation or an overheating economy. After the pandemic, inflation rose as pent-up demand was released and supply chains issues were cleared. Russia’s invasion of Ukraine further spurred inflation due to higher energy costs. Central banks responded with a series of rate hikes, which is the tool generally used to moderate inflation.
When an asset is assigned Overweight, an analyst or investor typically thinks that it will outperform others in the market, sector, or model. Underweight is indicative of the opposite.
