2025 was a contrasted year: a noisier political backdrop under Trump 2.0 with more volatility and, ultimately, another strong year for equities. Global equity markets are up 18.3% in dollars[1], powered by the AI boom and a cycle of investments that continues to redefine global growth. The key question now is whether markets can sustain momentum into 2026 as expectations rise.
A resilient growth engine takes shape
The engine of this cycle remains intact, as the boom of AI-related investments is supported by strong balance sheets and real profitability rather than leverage or narrative alone. Hyperscalers[2] continue increasing investment budgets, and AI adoption is translating into earnings. China, meanwhile, is accelerating with extraordinary speed: domestic AI models, semiconductor expansion and a vast electricity generation build-out are pushing it close to energy self-sufficiency. While the US leads in chip design, China controls most physical inputs, from rare earths to manufacturing capacity, and is now less than a year behind in capex pace.
The broader macro backdrop is supportive, with fiscal and monetary policy aligned across major economies. We expect two more Fed cuts, looser financial conditions and a gradual easing of tariff drag. Earnings should be the primary driver of equity performance, particularly in Europe, where we expect high single-digit EPS growth in 2026[3].
Equities: a broadening opportunity set amid rising dispersion
We are constructive on equities, with a diversified regional allocation. Although the US trades at a premium, it is justified by strong earnings in the technology sector. Europe offers compelling valuations and the prospect of investment-led recovery. Japan remains a structural overweight for us, supported by sustained corporate reforms, improving governance, rising return on equity and buyback activity. Emerging markets, especially in Asia, benefit from lower valuations, a softer dollar, and participation in the AI supply chain.
In the current markets, sector positioning, thematic exposure and stock selection will matter more than broad regional calls.
The AI-driven investment spending super-cycle remains our central equity theme. US hyperscalers’ valuations, although high, are anchored in earnings growth rather than speculative multiple expansion.
We also have exposure to Chinese technology, which offers a cheaper entry point and rapid progress across semiconductors, AI models and energy infrastructure. Although lagging the US, China is closing the gap fast, making it a valuable diversifier away from crowded US mega-caps. China’s approach to AI is more pragmatic, treating AI as an enabling technology rather than a singular end goal, embedding it into a broader industrial strategy— EVs, batteries, clean energy, robotics and advanced manufacturing—where it already demonstrates global leadership.
Our second preferred theme is the electrification bottleneck. AI-related power demand is accelerating sharply, while electricity generation and grid capacity lag. This creates long-term opportunities across utilities, grid infrastructure, storage and electrification metals such as copper.
Risks remain. AI progress may eventually face physical, data or energy constraints, raising the possibility that today’s front-loaded spending proves excessive. We cannot rule out potential disappointments and higher volatility.
Alongside technology, we maintain a positive view on healthcare and biotech, which offer growth and diversification in a market that is increasingly cyclical and AI-dependent. Innovation pipelines are strong, valuations have reset and M&A activity is picking up as large pharmaceutical companies seek to replenish portfolios.
In a market environment defined by rising dispersion, we believe thematic exposure and disciplined stock selection are the primary drivers of performance.
Fixed Income: selectivity in a maturing cycle
Global rates markets are transitioning from synchronised easing to more differentiated normalisation. While the Fed is likely to settle near neutral, the ECB should move cautiously, while Japan normalises. In this environment, we use duration primarily as a hedge, and focus on relative value and curve positioning.
On the credit side, markets are late cycle. Rising tech capex, easier financial conditions and a revival in M&A point to higher supply and greater dispersion, with limited scope for further spread tightening. Geographically, we prefer European credit, where hedged yields are now competitive with the US and fundamentals are improving.
We maintain a positive stance on emerging market debt, particularly in local currency, although returns should moderate after 2025’s strong performance. A softer dollar, easing emerging market (EM) central banks and still-compelling carry continue to support the asset class.
As regards currencies, we are broadly negative on the US dollar over the coming months. Narrowing rate differentials support a more normalized euro/dollar range of 1.15–1.20. Asian currencies are likely to drive the next phase, where depreciation pressures persist amid trade tensions and policy uncertainty.
Commodities: supply matters
Finally, we remain constructive on gold, which benefits from strong physical demand, renewed ETF inflows, central bank buying and demand for real assets. We will view pullbacks as buying opportunities. Silver retains upside due to persistent supply deficits and limited production flexibility.
In base metals, we favour copper and aluminium, where structural supply constraints dominate.
We are more negative on oil, as slowing demand growth, strong non-OPEC supply and higher OPEC output point to sustained excess supply in 2026.
Conclusion: a measured but genuine sense of confidence
This is how we approach 2026 as the forces that shaped markets in 2025 remain in place. The cycle is evolving, not ending: AI investment, improving productivity and supportive policies continue to provide a solid foundation for global markets.
Our approach is to stay invested, but with greater discrimination—favouring equities with clear structural momentum, being selective in credit as supply rises, and using duration, currencies and real assets to shape portfolio balance. In this phase of the cycle, returns will depend less on market direction than on the quality of decisions within portfolios.
[1] Source: Bloomberg, Performance of MSCI World All Country index in 2025 as of 17 December in dollars. Performance in euros over the same period is 4.2%. © MSCI, All rights reserved. Past performance is no guarantee of future returns.
[2] Hyperscalers form the backbone of today’s AI infrastructure, providing the compute scale and platforms required for model training and deployment.
[3] Source: Candriam estimates