Investment outlook 2026 midyear outlook: A world disrupted? Resilience endures.

While our 2026 annual outlook argued that firmer global growth would favour non-US stocks and weigh on the US dollar this year, recent events have delayed — but not curtailed — this story. In a world undergoing immense disruption, we believe resilience endures and provides a favourable investment environment. Our midyear outlook reflects two key themes:

• A world disrupted. In the first half of the year, the global economy contended with various disruptive forces, including the rise of artificial intelligence (AI), geopolitical fractures, the closure of the Strait of Hormuz, and an upset of energy and commodity supplies.
• Resilience endures. Private-sector leverage has fallen since the 2008 Global Financial Crisis, in our analysis. Meanwhile, previous rate cuts in the US and UK, along with looser fiscal policy in Europe and Japan, are supportive of a measured re-leveraging through stronger investment and spending.

For a quick take on the key themes shaping markets now — from global resilience and AI-driven growth to the US dollar and emerging markets — and where we see investment opportunities, watch our midyear outlook video below.

Investment themes to watch

The global economy is evolving, and with it, the investment landscape. The themes we believe will matter most for investors in the back half of 2026 focus on market resilience, the US dollar, emerging markets, AI, and alternatives for income and diversification.

Market resilience

Most major assets have delivered positive returns so far in 2026 after a tumultuous March.¹ We take this as a reminder of the value of staying invested in the face of troubling news flows. The pattern of returns has shifted since February. US stocks have been performing better than we anticipated in our 2026 annual investment outlook.

Investment opportunities: We believe market performance for the remainder of the year is highly dependent on events in the Middle East. Resumption of traffic through the Strait of Hormuz will likely be met by a strong cyclical bounce, in our view, led by emerging market (EM) and European markets. We believe US stock and bond markets will likely perform well, too, but lag in cyclical areas such as materials and industrials.

US dollar is likely to continue its bout of weakness

A core tenet of our 2026 annual investment outlook was that the US dollar would weaken this year. We maintain that view. In our analysis, the dollar remains one of the more overvalued currencies on most measures. The fact that it hasn’t strengthened much in the face of the recent energy shock is telling.

Investment opportunities: If we’re correct and the US dollar weakens this year, we expect equities in non-US markets, especially EM, to perform well.

Emerging markets look well-positioned

A weaker US dollar and improving growth dynamics support our preference for emerging markets (EM). Select EM countries such as Taiwan and Korea are benefitting from AI hardware scarcity, in our analysis. EM assets should benefit from global reacceleration — some from rising commodity prices, others from exposure to the AI theme — and many still offer attractive valuations, in our view.

Investment opportunities: Whether it is stocks, bonds, or currencies, we remain positive on EM assets.

AI is still a major market force

The AI story remains a dominant theme for both markets and many economies around the world. We don’t see that changing soon. The impact and best way to get exposure to the theme, however, appears in our view to be changing. We prefer exposure to semiconductors and hardware players and are wary of software companies.

Investment opportunities: We continue to see opportunities emerging from the AI theme and expect it to help power EM returns and continued earnings growth in exposed sectors, such as semiconductors, data centre infrastructure, energy, and commodities.

Look to alternative sources of income and diversification

Though we think the rise in inflation will be limited and short-lived, we firmly believe that inflation won’t return to below target levels in most developed markets soon. We like to hold assets such as real estate and private credit, which offer both income and diversification advantages in a more inflationary world.

Investment opportunities: We believe that real estate and private credit, such as direct lending, bank loans, and AAA-rated collateralized loan obligations (CLOs), make sense.