In brief:
- Cautious optimism, but big questions remain
- Geopolitical shifts driven by a tripolar world
- Desynchronised interest rate moves and currency volatility
- Heightened focus on AI and diversification
- Not forgetting timeless lessons from the “Sage of Omaha”
For quick definitions of terms, whether for you or someone else, head to the bottom of the article page.
The Chief Investment Officer’s view – Patrick Farrell, CIO:
We head into 2026 with cautious optimism. Investors are still weighing anticipated rate cuts and resilient corporate earnings against a backdrop of persistent uncertainty and economic challenges in key regions. How will these factors impact underlying consumer demand, margin pressure, inflationary forces, central bank action, long-term bond yields and, ultimately, market outcomes?
Scenario planning is key as the geopolitical landscape evolves toward a tripolar dynamic with the US, China and the rest of the world. Policy shifts in Washington, stimulus in Beijing, and Europe’s stagnation will continue to influence markets.
It could be another bumpy ride, so remaining adaptable and prepared for a reasonable spectrum of possibilities will be crucial. Investors should continue to prioritise resilience, long-term positioning, and active management to mitigate risks and seize opportunities in an uncertain global economy.
- Read more: Investing in a tripolar world: navigating new geopolitical realities
- Read more: What are the investment lessons from 2025?
An asset allocator’s perspective – Abbas Owainati, Head of Portfolio Management & Asset Allocation:
After several years of US equity markets dominating returns, we believe conditions are shifting. After a blockbuster year in 2024, the S&P 500 index – the main stock market in the US – underperformed other major markets in 2025, particularly emerging markets (EM).
In our view, EM equities could continue to deliver for investors in the year ahead. One important catalyst has been concerns over the US dollar’s reliability as a so-called “safe haven” – something we don’t expect to go away. A weak dollar tends to help EM companies and economies by making it easier for them to service debt and compete for foreign investment. This driver is particularly relevant for countries with high exposure to dollar-denominated debt, such as parts of Latin America and Southeast Asia.
A further boost could come from continued interest rate cuts by EM central banks. The average EM inflation rate has now dipped below that of developed markets.
Another running theme we expect to continue throughout 2026 is heightened attention on artificial intelligence (AI). Earnings growth remains heavily concentrated in a narrow group of mega-cap tech companies, companies with market capitalisations above $200 bn (around £150 bn). For now, big tech’s growth drivers appear intact. However, the assumption that earnings will continue to grow at the current pace continues to present risks that these companies fail to deliver against lofty expectations. This focus is likely to persist, with investors remaining wary of a possible “AI bubble” and the potential for sharp reactions in response to any signals that growth is slowing.
We saw signs of profits being generated by a wider range of companies in the fourth quarter of last year, meaning financial markets could be becoming less reliant on a handful of mega-cap leaders. That said, these signs are tentative, and investors will be watching closely to see whether this improvement in breadth can be maintained.
Against this backdrop, we consider multi-asset strategies and disciplined diversification essential to helping investors balance opportunity and risk across regions, sectors and asset classes.
A word on fixed income – Oliver Faizallah, Head of Fixed Income Research:
One of the big focuses for 2026 is where interest rates go next. There have been signs developed market central banks are approaching the end of their easing phases, setting the stage for what could be a “new normal”.
We believe the most likely outcome based on current expectations is that government debt yields will remain higher than in the past decade, while credit spreads remain tighter than historical norms.
Will we start to see a return to more typical economic conditions after a period of disruption? If there are no major shocks, we expect inflation to fall and central banks to settle at their final interest levels. We will be watching to see if geopolitical events could delay, accelerate or reverse that process if they materially affect growth or inflation.
But in this environment, we would expect most bond returns to come from regular interest payments rather than big price moves.
This period of normalisation should lead to steepening pressure at the long end of UK and European sovereign curves, mostly driven by fiscal (tax and spending) policy concerns. In the US, we expect to see a neutral rate. However, the level and the time it takes to get there is less clear as the US employment picture and inflation expectations remain highly debated.
Turning our attention to credit, while spreads are compressed, attractive all‑in yields and healthy corporate balance sheets allow for a positive view, but with selective exposure across both investment grade (IG) and high-yield bonds. We maintain a focus on active management within credit – one that can focus on disciplined single‑name selection.
The normalisation we expect to see in 2026 isn’t without opportunity.
As policy rates near terminal and inflation trends lower, yield curves will reflect a pragmatic balance between disinflation progress and fiscal realities. Today, sovereign markets offer decent starting real yields (yields above inflation) and steeper curve structures that offer reward for duration risk.
In credit, carry is king under our base case. But with spreads tight, investors must earn their returns carefully – both from a selection, and a tenor perspective. Providing there isn’t a growth or credit shock, fixed income portfolios should deliver solid income‑driven returns. Crossover credit (debt bordering investment grade and high yield) and shorter‑dated, high‑quality bonds provide a resilient portfolio core and offer room to add risk selectively on any increases in spread.
Through the equities lens – Amish Patel, Head of Equity Research
In the year ahead, it will be important to consider the quiet forces that shape equity returns that don’t necessarily make the headlines. While AI optimism and macro uncertainty will remain in the spotlight, the real differentiator could be what companies do with their cash. Organic reinvestment, disciplined acquisitions and shareholder returns aren’t just tactical choices – they are potential engines of further growth.
After years where fast-moving trends have overshadowed underlying fundamentals like companies’ financial health and growth potential, we’ll be looking for signs of any shift. Could 2026 be the year we see a return to quality investing, where strong balance sheets matter more than chasing rapid growth? Companies’ financial decisions in the year ahead could define resilience and long-term value creation.
When Warren Buffett stepped down from his role as Chief Executive of Berkshire Hathaway on New Year’s Eve, he closed one of the most instructive chapters in investment history. Not for what he built, but for how he built it.
The “Sage of Omaha” is widely regarded one of the greatest investors of all time. His investment principles, anchored in intrinsic value, patience and discipline, are well known.
The enduring lesson from Buffett’s career is that success wasn’t about one man’s genius but about a consistent long-term approach. Products win markets. Strategy captures margins. But capital allocation compounds wealth. This philosophy requires patience when markets reward haste, restraint when capital is abundant and conviction when opportunity knocks.
As he is famous for saying: be greedy when others are fearful and fearful when others are greedy.
Looking ahead, many companies we see as attractive investments in 2026 share one common trait: leaders who view spending and investment decisions not just as routine finance, but as the key to creating lasting value.
A glossary of terms
All-in yield – the effective yield on indebtedness.
Easing cycles – phases in monetary policy where central banks reduce interest rates to stimulate economic activity.
Terminal rate – the expected interest rate central banks could reach during a changing monetary policy cycle.
Government debt yields – the interest rates offered by governments to borrow money through bonds.
Credit spreads – the difference in yield between different debt instruments with the same maturity but different credit ratings.
Carry – the potential returns an investor can earn from holding an asset, typically from yields, interest or dividends.
Yield curve steepening – where the difference between long-term and short-term interest rates widens.
Fiscal policy – use of government spending and taxation to stimulate economic performance.
Neutral rate – the interest rate at which monetary policy is neither slowing nor boosting the economy.
Investment grade (IG) – a credit rating that suggests a bond has a low risk of default.
High yield bonds – debt securities of corporate bonds rated below BBB– or Baa3 by established credit rating agencies.
Crossover credit – bonds that are in a middle ground between investment grade and high yield credit ratings.
Real yields – the gap between nominal yield and inflation rate describing the investment return.
Duration risk – the potential loss an investor faces due to changes in interest rates.
Tenor – the length of time remaining in the life of a financial contract.
Spread widening – the increase in the difference between yields or interest rates of two financial instruments.
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Investing in a tripolar world: navigating new geopolitical realities
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