In the latest Candriam Explore webinar, CIO Nicolas Forest was joined by Charudatta Shende, Head of Client Portfolio Management Fixed Income, Servaas Michielssens, Head of Healthcare, and Alix Chosson, Head of Climate Transition & Impact Investing, to discuss three questions shaping markets today:
Twenty-five years ago, we were living through a technological revolution. The internet was transforming the economy, technology companies were driving markets and valuations reached levels that forced investors to confront a difficult question: how much of the future are we already paying for today?
There is another fascinating parallel: rates. In 2001, the US 10-year was yielding around 5%. Today, once again, we are close to this territory. After a decade of low yields, it seems that bonds are becoming bonds again, offering meaningful income and a real alternative for investors.
This summer, three main drivers stood out. First, technology and AI lost momentum, while energy outperformed. Second, tensions in the Middle East caused volatility and a rebound in oil and natural gas prices, contributing to higher inflation expectations. Third, we have seen higher rates across the world, with long-term yields reaching levels not seen for years.
I don’t think that 2026 is another 2001. But from the internet then to AI today, the challenge is the same for investors: turning an understanding of structural change into long-term conviction. The story may be different, the technology may be different, but ultimately only conviction matters.
The US 10-year yield is over 4.9% today[1], which is quite different from the last 10 years of low rates that we have seen. It has established a level there and it doesn’t look like it is going to come down anytime soon.
The pressures we see pushing yields higher are structural and have a lot to do with inflation. Debt and deficit levels across developed markets are extremely high. Trade wars, supply-chain issues and everything happening in the Strait of Hormuz are inflationary as well. Artificial intelligence also involves a lot of CapEx. These elements are here to stay and will apply upward pressure on rates.
So, rates high for longer? Certainly, that appears to be the case today and should be the case in the medium term, but not high forever. We think rates are going through a period where there will be more dispersion, more volatility and more relative-value opportunities across regions.
Carry is also creating opportunities. Yields are much higher across sovereigns, investment grade, high yield and bank subordinated debt, while fundamentals still appear fairly resilient. But we remain focused on risk. To exploit this carry, we will have to choose our sectors, issuers and themes extremely carefully.
Healthcare is not a single trade. There are a lot of healthcare subsectors that behave differently and, over the last year, biotech has been a market leader.[2]
There was a lot of uncertainty around drug pricing, the FDA and tariffs, but most of that was resolved around a year ago. More importantly, fundamentals, especially in biopharma and biotechnology, have been extremely strong. We see very strong innovation. There is also an AI element, although that is not what is driving share prices today. It is really new product launches, mergers and acquisitions and very high healthcare utilisation across the globe that are leading to strong earnings momentum.
Innovation is key for healthcare as a whole. We have seen breakthroughs in areas such as personalised cancer vaccines, where the cancer genome is sequenced and an algorithm filters the most important targets for the patient. We have also seen significant progress in pancreatic cancer, historically a graveyard for drug development.
Today, I would say we are more mid-cycle in biopharma. We see very strong product cycles and actual products being launched with very high growth rates. Valuations have picked up but have not moved to excessive levels, while M&A remains very strong. We also see opportunities broadening into medical technology and life-science tools and services.
The summer of 2026 brought into sharp focus a reality that can no longer be ignored: climate change is not a challenge for future generations; it is one of the defining challenges of our time. Across continents, we have seen record-breaking heatwaves, devastating wildfires, prolonged droughts and destructive floods, demonstrating that climate risks are material, immediate and increasingly systemic.
The slow pace of the energy transition is turning climate risks into physical risks, increasing the overall economic, environmental and social costs. And probably the costs that have been projected so far are widely underestimated because economic studies are struggling to integrate the systemic and cumulative effects of climate impacts. We need to move from an insurance-type damage function focus towards a more macroeconomic and systemic assessment of climate risks.
At the same time, geopolitical fragmentation and AI are creating both headwinds and tailwinds. Energy security is supporting investment in renewables and grids, while AI is creating a massive challenge for power systems. But there is also strong potential for AI to optimise energy and resource use across industries. And the question will AI accelerate or derail the transition is still to be answered, depending on economic and political choices.
One thing is clear across all climate scenarios. Years and decades to come will require more investments in energy and especially in clean energy and climate solutions. The shift from billion to trillion has already happened for climate mitigation, now the challenge will be to sustain or even increase this pace while changing scale in climate adaptation. Mitigation and adaptation are two sides of the same coin. Every fraction of a degree avoided matters.
Climate will continue to be a key investment theme for 2026 and beyond. It is no longer a matter of policy and regulation; it is a matter of economics, geopolitics and physical limits.
In a recent Explore webinar, Candriam CIO Nicolas Forest, alongside Chief Economist Florence Pisani, Co-Global Head of Equity Management Johan Van der Biest and Head of Emerging Markets Equities Paulo Salazar, shared their views on the impact of the Strait of Hormuz closure, the general feeling of the markets and explored the trends to be aware of across equities. The discussion pointed to a market that has stayed resilient, but also to a world where inflation risks and supply disruption are rife, and valuation discipline still matters.
One month into the conflict, one word stands out: de-escalation. Markets have moved through weeks of escalation, ceasefires, blockades and reversals, yet risk assets remain close to their highs for the year: Equity markets have stayed firm; credit spreads remain tight. At first glance, markets appear to be looking through the geopolitical shock.
That resilience should not be mistaken for comfort everywhere. Long-dated bond yields remain high, and inflation expectations have moved up. This creates a striking contrast: risky assets are holding up well, while rates continue to reflect a more difficult inflation backdrop. That matters because higher inflation makes life more complicated for central banks and governments alike. Monetary policy becomes harder to steer. Budgetary policy becomes more constrained.
The earnings picture helps explain why equity markets have remained resilient. Unlike the sharp drop in earnings expectations that followed US President, Donald Trump’s, tariff announcements on “Liberation Day”, this conflict has not triggered the same collapse in forecasts. Energy, materials and parts of technology have continued to support earnings expectations, helping markets absorb the shock.
The key lesson is to resist being pulled from headline to headline. In fast-moving markets, long-term convictions matter more than noise. That is why the focus remains on the areas where structural trends still look intact, and where markets may be underestimating the durability of earnings.
The global economy has proved more resilient than expected. Labour markets in the US and Europe remain solid, and recent data suggest growth carried into the first quarter. Institutions such as the IMF and OECD have only marginally revised down their forecasts. That resilience, however, depends on one key assumption: disruption in the Strait of Hormuz is short-lived.
The Strait is not just an oil route. Around 20% of global oil and gas flows through it[3], but the impact extends far beyond energy. Energy prices feed into many industrial inputs and food prices. Fertilizers, sulphur and helium are affected. If disruptions persist, this will trigger broader supply chain tensions. Early signs of strain are already visible in jet but also bunker fuel markets.
The key question is not whether traffic will normalise, but how quickly. Strategic reserves and rerouting can provide temporary relief, but they cannot fully replace normal flows. A short disruption is manageable. A prolonged one would push inflation higher, weaken confidence and materially impact growth.
A slow normalisation scenario appears more likely than a rapid recovery. Political uncertainty remains high, and even after any agreement, normalisation will take time. The global economy has not broken, but it is more exposed to a persistent supply shock.
The case for technology remains constructive, but the focus is shifting from pure momentum to selectivity. Strong earnings growth continues to support the sector, helped in part by ongoing investment in AI infrastructure. That investment is now feeding through to revenues across the ecosystem, moving the story beyond expectations to tangible results.
At the same time, markets have become more nuanced. Valuations have normalised in parts of the sector, particularly in software, where recent underperformance has created more interesting entry points. This opens opportunities, but not across the board. Some segments face genuine disruption from AI, while others are positioned to benefit from it.
AI remains an important driver, but it is not the only one. Adoption is still at an early stage, suggesting further upside over time. However, constraints such as access to electricity, water and financing could shape the pace of expansion and need to be monitored closely.
The outlook therefore calls for greater discrimination. Areas such as cybersecurity stand out, where demand remains strong and AI acts as an enabler rather than a threat. The opportunity in equities is still compelling, but it is no longer about broad exposure. It is about identifying where earnings remain resilient and where structural growth can be sustained.
If a major oil shock is avoided, the medium-term consequence of this conflict may be a weaker dollar. That would mark an important shift for emerging markets. Central banks are diversifying reserves, trade is increasingly conducted in other currencies and China is positioning itself as a more reliable partner. In that environment, emerging market equities appear well placed.
Valuations strengthen the case. Emerging market equities remain compelling relative to developed markets, while portfolio inflows suggest investors are starting to respond. The energy backdrop also matters. Energy security has become more strategic, supporting both traditional energy producers and renewables, whose competitiveness improves when oil prices stay elevated.
Technology is another key driver. Emerging markets are no longer a single-country story. The opportunity set is broader, spanning Taiwan, Korea and India, with technology now the largest sector. AI investment by US leaders is already feeding into earnings growth across Asian tech companies, many of which still trade at a discount to US peers.
China requires a more selective approach. Growth has slowed and the broader backdrop remains uneven, but opportunities persist. Sectors such as semiconductors, robotics and advanced manufacturing continue to show strong momentum. Across emerging markets equities, we believe, the opportunity lies less in broad exposure and more in careful stock selection.
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