2026 Outlook: Out With The Old, In With The New
Most asset classes performed strongly in 2025, but not without the expected volatility following US President Trump’s return to office at the start of the year. Trade tensions and geopolitical risks weighed on markets, while uncertainty over interest rate cuts persisted amid unclear inflation trends. Despite these headwinds, the global economy proved more resilient than expected. Equity markets reflected this strength, delivering one of their best annual performances—a common leading indicator of economic health.
What can we expect in 2026?
Looking towards the new year, we believe a similar tune is likely to be sung. The combination of easier monetary policies, fiscal stimulus and solid household balance sheets along with the lowering of policy and trade uncertainty should allow global economic activity to maintain solid momentum in 2026. Strong AI-related investments and the associated wealth effects could also propel the economy further forward.
As for inflation, we see further moderation globally albeit stubbornness may persist in some countries. Certain Central Banks are likely to continue tolerating above target inflation, prioritising financial stability, growth and employment so long as inflation expectations do not rise sharply.\
Geographical Snapshot: How are each region likely to fare?
Europe
Growth is likely to be supported in 2026 following the trade agreement with US as well as the fully deployment of the German fiscal stimulus. Activity should pick up in majority of countries, albeit the projected strength of EUR could work against the economies. Inflation should remain stable, hovering around the central bank’s target of 2%. Rate cutting cycle largely seen as completed and we do not rule out hikes towards the end of 2026.
Asia
United States
We anticipate economic growth to remain broadly stable. Inflation could persist as the Fed looks likely to tolerate above target (>2%) inflation in favour of balancing the softening labour market. Two additional rate cuts are currently expected with a terminal rate of 3.25% by middle of 2026. The ongoing loosening of financial conditions supports our view of weak dollar (12m DXY target 93.3). The midterms elections in 2026 is a key event.
China
Japan
The fading impact of US tariffs is positive for the economy. With the new PM Takaichi, fiscal expansion and less hawkish monetary stance can be expected. A more cautious BoJ regarding rate hikes (two hikes forecasted for Q2 & Q4 2026) limit the upside for the yen, which could boost profitability, competitiveness and tourism. However, the economy is already at full employment. Thus, we see fiscal expansion showing up more strongly in prices rather than in economic activity.
How will lower interest rates impact the financial markets?
Interest rates globally are poised to fall further, led by the US Federal Reserve. These policy rate cuts have driven deposit and money market yields lower. Consequently, sovereign bonds also offer lower returns than before, and the situation is made worse by compressed corporate bond spreads which is now at cycle lows. The hunt for yield is back on.
Given the diminished returns from cash and core bonds (Neutral US & EU Govies and US Investment Grade), investors need to cast a wider net for yield. Emerging-market debt in local currency (Overweight EM Local Currency) stands out, offering an average yield close to 6% and supported by resilient domestic fundamentals and stronger currencies. Beyond public markets, lower-risk private credit strategies provide stable mid-to-high single-digit yields for investors willing to accept moderate illiquidity.
Can the equities bull run continue?
In a macro bull cycle, the third year is on average the lowest in terms of performance, accompanied by heightened volatility. Starting our most recent macro bull cycle from 2023 (two consecutive years of > 20% on the S&P 500), all evidences suggest that we are right on schedule, and that the strong uptrend is likely to resume in 2026.
This also ties in perfectly with encouraging macro conditions. Global equity markets are showing incredible strength on the back of economic resilience, strong corporate earnings across the board as well as easy monetary positioning. Additionally, record share buybacks and potential rotation from money market funds (over USD 7 trillion in US money market funds alone) are possible tailwinds for the bull market to continue. Therefore, we maintain our global equities positive outlook despite stretched US stock valuations.
What are our key convictions in equities?
We believe investors should start thinking about balancing risk and reward. Although the later stages of bull markets can deliver the most explosive gains, volatility is increasing. We encourage market participation while simultaneously locking in profits and limiting risks to the downside in the event of a market correction.
As such, our key preference remains for non-US equities, such as China, Japan, UK and India. In terms of sector, we have a slight defensive tilt and like healthcare and utilities. That being said, we are also big believers of megatrends such as AI, data centers and alternate sources of energy. For 2026, we also recommending Asia, which remains a dynamic growth region, underpinned by strong domestic demand, rapid technological progress (AI) and structural plus corporate governance reforms. Despite the challenges, Asian equities offer compelling long-term return potential, driven by favourable valuations, superior earnings growth and portfolio diversification benefits. Additionally, foreign investors remain underexposed to Asian stock markets thus far.
Is the commodity super cycle here to stay?
After years of relatively cheap material cost, we are now firmly in an age of resource scarcity. Three factors have ushered in this new era for commodities: i) rising demand for electricity and strategic metals owing to growing investment in technology and defence; ii) the inability to meet this rising demand given a historic underinvestment in new mining and refining capacity for these commodities, and iii) the greater use of resource supply serving as geopolitical leverage between countries. Overall, we see a long-run bull market for commodities.
We maintain our Overweight view on industrial metals despite recent rallies. We remain most positive on copper, aluminium, uranium (strong demand growth for nuclear energy / data centers). The era of lower commodity prices is firmly over, particularly given the long lead time between rising commodity prices and capital investment in new mining and refining capacity. Going forward, the importance of critical minerals and energy security will also grow, thanks to the recent rise of tariffs, deglobalisation and mounting conflicts.
Meanwhile, precious metals benefit from a different source of increasing demand, principally driven by the desire for de-dollarisation by sovereign nations and central banks outside the US. This coupled with the ever-increasing geopolitical uncertainties, drove gold and silver to new all-time highs in the face of limited primary supply growth. We stay Neutral on precious metals near term (Gold TP 4500, Silver TP 60) given the extremely stretched momentum and positioning. However, in the longer term, we see further upside potential, hence pullbacks should be viewed as accumulation opportunity.
Introducing Our 2026 Investment Themes:
Perfectly embody our 2026 outlook
