Investment Monthly
After the 2025 rally, what next?
08 January 2026
Key Takeaways:
- In 2026, we expect a “role reversal” in areas of the macro, policy, and market environment, with US leadership fading, and growth converging in the west. Global market performance will be dependent on profits growth
- Market leadership and corporate profits will keep “broadening out”, especially in Asia and other emerging markets. Economic derisking and improved policy have made those regions structurally safer and less volatile
- With government bonds potentially less reliable as a portfolio hedge, investors should manage volatility by seeking to “diversify the diversifiers” with bond substitutes like hedge funds and private markets
Macro Outlook
- The US is expanding at a solid pace, but growth is unbalanced. AI-related capex is providing strong support, but a cooling labour market and tariff-driven price rises are a headwind to consumers
- We expect US growth to converge towards rates seen in other developed economies. Tariffs pose upside risks to inflation
- Supportive macro policies and tech/industrial competitiveness aid China’s growth resilience, but economic imbalances remain a key challenge
- We think premium growth opportunities lie in emerging and frontier markets, with economic power shifting to Asia and the Global South
Policy Outlook
- The US Fed is divided over the rate outlook, reflecting differing views on the medium-term trajectory for inflation and the labour market
- After eight rate cuts, eurozone inflation is close to target and policy is in neutral territory, with the ECB taking a “watch-and-wait” stance
- Fiscal policy stands ready to respond to growth disappointments in EM Asia, as the region approaches the end of its monetary easing cycle
- China will continue its targeted and calibrated policy supports to aid domestic demand, alongside reform efforts focused on strategic objectives such as technology innovation and self-reliance, and economic rebalancing