Summary
As investors look to 2026, a number of key themes — from global policy stimulus to geopolitics to AI — are expected to shape macro and market conditions. In the US, the policy environment will support economic growth through rate cuts and fiscal stimulus, especially in the first half of the year. Likewise, Europe, China, and Japan are expected to carry out fiscal stimulus programs, and there may be opportunities in growth assets within countries pursuing these measures. Meanwhile, geopolitical risks are likely to impact markets: US-China economic decoupling continues to reshape supply chains, while the global race for AI supremacy and rising populist politics add complexity. Western nations face growing debt and deficit challenges, affecting fiscal policies. Diversification and a focus on resilient companies should be considered.
We believe that AI valuations remain broadly reasonable. Despite rising valuations in major tech firms, current price-to-earnings ratios are below dot-com bubble peaks and are supported by strong fundamentals. AI is transformative across sectors, but cautious monitoring is still necessary due to risks of over-optimistic adoption forecasts and complex financing arrangements within the AI ecosystem. Separately, we also discuss AI enterprise adoption. AI is reshaping business value creation, though enterprises are proceeding with caution due to governance and security needs. Overcoming data and cultural challenges will accelerate progress, enhancing productivity and innovation across industries such as health care and logistics. Investors should consider targeting companies with strong AI R&D and strategic partnerships.
Through the first three quarters of 2025, non-US equities have outperformed US stocks, driven by market volatility and a weaker dollar. Growth in Europe, reforms in Japan, and innovation in emerging markets highlight global opportunities, making this a potentially attractive moment to diversify equity exposure beyond the US. Meanwhile, we believe that global fixed income diversification is key: macro volatility and policy divergence make a global investment approach essential. The US faces challenges, including a weaker dollar and policy uncertainty, while emerging markets and global credit offer attractive opportunities to us. Rebalancing portfolios away from the US and embracing global credit and emerging market debt can help enhance diversification. Finally, corporate credit fundamentals seem likely to improve. With expected rate cuts in 2026, corporate credit fundamentals like interest coverage and cash balances are set to strengthen, supporting tight credit spreads similar to mid-1990s conditions. We think that investors should maintain credit exposure, consider global credit diversification, and monitor stress in private credit.
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