Investment Monthly
Broadening Out in 2026
06 February 2026
Key Takeaways:
- We expect a “role reversal” this year in areas of the macro, policy, and market environment, with US exceptionalism fading, and growth converging in the west. Global market performance will be dependent on profits growth
- The new year rally concentrated in Asia and other emerging markets shows a “broadening out” of market leadership amid better EM corporate profits. EMs also look to be 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
- US growth has been robust, but there are some imbalances. K-shaped dynamics are in play: with AI capex booming, but a cooling labour market and tariff-driven price rises proving to be headwinds to consumers
- We expect more balanced, trend-like US growth this year. Tariffs and AI capex still pose upside risks to inflation
- Geopolitical events have been in focus in early 2026, and are expected to remain an important influence on the economic environment and markets
- Supportive macro policies and tech/industrial competitiveness aid China’s growth resilience, but economic imbalances remain a key challenge
Policy Outlook
- The US Fed is in wait-and-see mode as it assesses the impact on the economy of trade tariffs, immigration policy, and the AI investment boom
- Kevin Warsh’s nomination as the next Fed Chair resolves a key question for investors but the impact on policy is not clear cut
- With EM Asia approaching the end of its rate cutting cycle, governments have space to use fiscal policy to respond to growth disappointments
- China will continue its targeted and calibrated policy support to aid domestic demand, alongside reform efforts focused on strategic objectives such as technology innovation and self-reliance, and economic rebalancing