Keep It Turning
A spirit of endurance has characterized the market rally of the past year. This looks set to persist in 2026 as the global economy transitions to a new innovation-led regime and geopolitics enters a phase of controlled disorder.
Investment in artificial intelligence (AI) and related sectors will support global growth and ensure that a US slowdown does not turn into a recession. There are also reasons for optimism about Europe’s outlook. Meanwhile, growth in China, India and emerging markets overall will continue to be resilient.
Elevated equity valuations may therefore persist, but we are keeping a close eye on the risk that profits may start falling short of lofty expectations. Monitoring such risks is vital given the potential for shocks from a new geopolitical order whose hallmarks are rivalry in a range of domains, but cooperation on select issues, such as climate change or AI safeguards.
This backdrop will complicate the outlook for inflation. This is less of a problem in the euro zone, where we expect the European Central Bank to hit its inflation target. But US inflation will remain higher for longer.
Real rates may stabilise at more elevated levels than was the norm over the last couple of decades. This may also be the case for valuations of any blue-chip indices that have a heavy weighting of innovation-related stocks. Asset allocation will also have to adapt if the breakdown in some traditional market relationships persists. These include the simultaneous surge in gold prices and rally in equities, as well as the US dollar’s propensity to move in tandem with riskier assets.
Diversification and hedging will allow investors to mitigate some of these risks while making the most of the opportunities that new technology and innovation will create next year. Proceeding with confidence amid such uncertainty requires a shift in investors’ mindset but is likely to be the most worthwhile approach.
Monica DEFEND
The economy is adapting to a new regime of “controlled disorder”. Tech-led transformation, fiscal stimulus and industrial policy are keeping activity alive and leading to the emergence of new winners. Inflation becomes a structural theme that investors must also factor into their allocations.
Investment Themes for 2026
Investment Themes for 2026
Vincent MORTIER
Diversification remains the most effective defence in a world of concentrated equity markets and high valuations. Investor portfolios must rebalance across styles, sectors, sizes and regions to mitigate risks and capture opportunities, notably in Emerging Markets and European assets.
Key convictions for 2026
Key convictions for 2026
2026 will be a year of transition as the global economy adjusts to a regime of “controlled disorder”. AI-driven capex, industrial policy shifts, greater business resilience to tariffs and likely monetary easing should sustain activity and extend the cycle further. Investors will have to weigh equity concentration and valuation risks, rising public debt, structural geopolitical frictions, and sticky inflation from reshoring and the energy transition. Global GDP growth is set to moderate at 3% in 2026 but remain resilient.
“Controlled disorder”, where governments and businesses seek to maintain trade and investment flows, will redefine opportunities at a global level. Our base case for 2026 is mildly pro-risk, supporting equities and investment grade credit. With significant risk stemming from vulnerabilities and valuation excesses, portfolios should combine growth exposure with hedges — gold, selected currencies (JPY, EUR), and inflation-linked instruments — and a greater but selective allocation to private markets. Private credit and infrastructure are in the spotlight to improve income and inflation resilience, and to benefit from structural themes such as electrification, reshoring, AI and robust demand for private capital, particularly in Europe.
The tech capex cycle remains central, but the tech theme is broadening beyond the US to China, Taiwan, India, Europe and Japan. Concentration risk in US mega caps and the possibility of US exceptionalism fading argue for geographic and sector diversification. We favour combining AI exposure with defensive and cyclical themes: financials and industrials set to benefit from higher investment, defence names tied to security spending, and green transition stocks linked to electrification and grids.
Policy choices will drive markets. US debt is unprecedentedly high, which adds risks to the Fed’s independence at a time when inflation is still above target. This balance of forces should keep US yields range-bound, favouring a tactical duration stance and inflation-protection. In 2026, European bonds remain a key call for global investors, with a focus on peripheral bonds and UK Gilts. In credit, we like euro investment grade, with solid fundamentals and are cautious on US high yield, which is exposed to regional banks and is consumer dependent. We believe the USD will continue to weaken, but the journey will not be linear.
Emerging Markets and Europe are areas where short-term opportunities meet long-term themes. The EM rally has room to continue into 2026: a weaker dollar, potential Fed cuts, and the EM growth edge support EM bonds for income and selective EM equities. Europe’s appeal should increase throughout the year as reforms combined with defence and infrastructure spending turn into tangible opportunities, particularly in euro credit and small- and mid-cap equities (with a focus on domestic trends and compelling valuations).
Philippe D'ORGEVAL
Europe’s journey continues as reforms, defence investment, and industrial policy redefine its investment landscape. We see opportunities emerging in euro credit, infrastructure and strategic autonomy themes that could reshape Europe’s financial ecosystem and help it move from modest growth toward a more self-sustaining long-term trajectory.
Asset Class Views
Asset Class Views
For 2026, we maintain a mildly pro-risk stance, with a strong focus on enhancing diversification to withstand valuation concerns and structural inflation risks. Gold will continue to play a defensive role, along with select FX and real assets.
In equities, we favour an equal weight approach in the US to go beyond concentration risk and continue to look for opportunities globally. In particular, we are positive on European small- and mid-caps, and we see room for adding further into emerging markets, which could continue to benefit from higher growth and an expected weaker US dollar.
In credit, we prefer quality investment grade bonds, specifically in Europe, and remain cautious on US high yield. Across fixed income, we favour EU duration as rate cuts unfold and retain a positive bias on EM, particularly local-currency debt, which is supported by a weakening USD.
Editors
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Claudia BERTINO | Laura FIOROT | Swaha PATTANAIK |
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