Capital Market Assumptions 2026

5 key findings 

Our 2026 CMA points to appealing opportunities across different asset classes over the next decade. Domestic bonds continue the trend of the past few years towards higher expected returns, while equities still offer solid upside potential. 

In both fixed income and equities, emerging markets are appealing, not only for their return potential but also for the diversification benefits they offer. Private assets also remain important structural components of strategic allocations, but illiquidity and complexity underscore the need for careful selection. Gold’s expected return reflects its role in the global reserve system and its usefulness as a strategic diversifier.

The Capital Market (CM) Lines highlight how the risk-return trade off changes over time and across currencies. Over the next decade, the CM Lines are expected to be generally steeper, as equity returns should be higher than over the 20- and 30-year horizons; over the longer term, equity returns are expected to decline as ageing demographics weigh on growth.

Across currencies, investors in USD, EUR and GBP are likely to benefit from relatively attractive capital market lines, with a solid reward for taking additional risk. By contrast, the JPY profile remains flatter as FX effects reduce the relative appeal of foreign equities.
 

Over the next decade, US equities are likely to continue delivering strong earnings per share (EPS) growth. However, concentration and valuation risks remain important constraints on future returns, reinforcing the case for diversification. The appeal of Japanese equities has improved as ongoing corporate governance reforms ensure businesses allocate capital more efficiently, while European equities are supported by the push for strategic autonomy. Meanwhile, emerging markets, and India in particular, offer stronger earnings growth.

The outlook for government bonds has improved compared with last year’s edition of the CMA, with carry being the main engine of performance. The strongest improvement is in Japan, followed by the Eurozone, while the US and UK also remain relatively appealing. In credit, carry continues to support the asset class, but tighter spreads leave less room for error; this supports our preference for investment grade bonds.
 

Moderate risk profile (6% volatility target): bonds remain at the core, with gold playing a growing diversification role. Euro-based investors with a moderate risk profile can expect returns of about 4.5% over the next decade, rising to 4.8% when private and alternative assets are included, while USD-based investors with the same profile can expect annual returns of 5.6% to 6.0%. Global aggregate bonds remain a key component of strategic asset allocation, although their weight has been reduced slightly to make room for gold. Compared with last year, equity allocations have declined, particularly in developed markets.  

Dynamic risk profile (12% volatility target): equities and private assets drive potential returns; gold provides diversification. Expected returns rise meaningfully relative to the moderate profile, ranging from 6.4% to 6.9% for euro-based investors and from 7.0% to 7.4% for USD-based investors. Overall bond allocations are reduced to fund greater exposure to equities and gold, both of which take on a more prominent role in the portfolio. Private and alternative assets also account for around 20% of the overall allocation.  

Turning fragmentation into resilient, inclusive growth

	Opportunities amid rupture Rupture can be an opportunity if policymakers rise to the challenge. Governments can encourage reshoring and boost capital formation and productivity through targeted industrial policy, building up buffers of strategic resources, and renewed investment in education, health and retraining.
	AI could delay demographics’ effect on growth Technological advancement is accelerating. AI should boost productivity, address labour shortages, and enable large scale reskilling. However, progress hinges on countries’ ability to innovate and ensure the swift diffusion of AI. Success will bring productivity gains that may temporarily offset the negative impact of ageing populations on growth.
	A delayed path towards Net Zero  We have further downgraded the probability of the Net Zero pathway in favour of a delayed transition. In the short term, the US administration’s stance on energy transition is establishing a precedent that others may be tempted to follow. That said, energy-dependent countries may be forced to accelerate their deployment of more sustainable options.
	Strategic autonomy may enhance resilience  Strategic autonomy has emerged as a matter of national security and could help dampen the volatility of economic swings even if it does not boost growth rates. Industrial and trade policies are refocusing on national security priorities and financial flows will follow. Such shifts will raise short term costs, but support sustainable growth in the long term.