We anticipate that 2026 will be a year of ‘resetting and rebalancing’, and nowhere will this be more evident than in the equity space. Al and big information technology companies undeniably supplied a lot of the heavy lifting for global equity indices in 2025, but with earnings strength spreading beyond these segments, investors would be well placed to consider broadening their portfolio diversification now in order to minimise concentration risks. The same holds true geographically. For more than a decade, US markets have been the gravitational centre of global investing. However, 2026 demands a broader lens.
Five key trends driving global markets
Trend 1: In Europe, cyclicals tick the box
The economic backdrop in Europe favours cyclicals, i.e. companies whose performance is closed tied to the ups and downs of the economy. This is because cyclicals tend to thrive during periods of economic expansion. Our economists expect Europe to continue to stimulate its economy in 2026 with increased public investment, particularly in infrastructure and defence. With a brightening economic outlook in the region – especially in Germany – and supportive economic policies, attractive valuations provide the icing on Europe’s cyclicals cake. Within Europe, our analysts particularly favour financials and mid-cap stocks. Meanwhile, we believe that Swiss equities, with their defensive-sector exposure, currency strength, and income generation, should form a core allocation within global equity portfolios.
Trend 2: Emerging markets regain momentum while Asia tops the list
Despite their comeback in 2025, investors have been reluctant to reinvest in emerging market equities. The asset class remains under-represented relative to its economic size and is underweighted in portfolios even though emerging market stocks are attractively valued.
Both cyclical and structural tailwinds should support the strength of these stocks in 2026, with three factors in particular expected to contribute:
- A weaker USD
- Direct exposure to AI supply chain
- Improving earnings momentum
Regionally, our strategists prefer Asia, maintaining their positive stance on Indian equities, but also highlight China for 2026. The nation is set to benefit from technological innovation along with accommodative monetary, fiscal, and industry policies in 2026. Staying in Asia but moving beyond the emerging market space, our equity strategists are also positive on both Japan, where structural reform should boost equities, and Singapore, which represents a safe harbour in a volatile macroeconomic world.
Trend 3: Defensives are appealing, especially healthcare
With investors growing increasingly nervous regarding the hyperscalers’ ability to monetise their huge capital expenditure, it is perhaps no surprise that defensive sectors such as healthcare became popular again in the last quarter of 2025. Our analysts believe that the healthcare sector can sustain this interest in 2026 as investors continue to diversify out of what has already performed well for them and into defensive sectors in order to minimise uncertainty risks.
A key catalyst boosting the prospect of healthcare stocks came in the form of Pfizer reaching its landmark agreement with the US administration in September 2025, which was quickly mirrored by other big drug companies. This led to a reduction in policy risks and means that considerable earnings risk can now be avoided. Valuations also remain compelling both on an absolute and relative basis, while earnings revisions have finally turned positive and are in fact second only to those in the information technology sector. With markets still heavily concentrated in AI names, healthcare offers exactly what is missing elsewhere: high visibility on defensive earnings, growing cash flows, and less dependence on gross domestic product growth and hyperscaler capital expenditure.
Trend 4: AI and hyperscalers still matter
Despite the ‘bubble’ headlines, our strategists stress that we are still some distance away from the extremes of the dot-com era and that AI is likely to remain a key driver of equity markets. Our Next Generation analysts argue that the two winning themes of 2025 are those that investors should stick with in 2026, namely Cloud Computing & AI (where hardware and software firms and essential data centre solutions are favoured) and Cybersecurity. Valuations are undoubtedly high but not deemed exuberant, and appetite seems only set to increase further.
Trend 5: Do not dismiss clean energy in 2026
Despite the gloomy headlines about the world’s prospects of achieving carbon neutrality, clean energy remains competitive and in high demand. Our Next Generation analysts believe that far from being postponed, the energy transition is actually being accelerated right now, driven by unbeatable economics in solar, wind, and storage. Profitability in renewables is improving, supported by consolidation, falling costs, and smarter grid integration, making it a compelling long-term investment. Europe stands to benefit most from cheaper energy, turning perceived cost disadvantages into competitive gains.
Frequently asked questions
Is AI still a long-term growth story, or are we approaching bubble territory?
We do not believe that we have reached bubble stage yet but are rather in the early stage of exuberance. AI should remain a key market driver, but rising concentration risks make broader diversification sensible. Our Group CIO also highlights that there are significant downside risks highly concentrated in the US should AI and its related applications prove to be non-viable avenues to at least recoup today’s enormous capital outlays.
Should I broaden my investment approach to include indirect or diversified ways to gain exposure to AI?
A broader diversification into indirect exposure comes at a cost, as the impact of AI on the shares of the selected companies will be much smaller than for companies directly involved in the technology.
China shifted from ‘avoid’ to ‘buy’ almost overnight. What triggered this change?
Maybe for some it felt like the shift came suddenly, but for our equity analysts there was a gradual build-up to the decision to change their call on China. They adopted a positive tactical view on Chinese equities in May 2024 following the government’s changed stance towards the property sector, which our analysts felt was a critical step towards alleviating structural problems in the Chinese economy and which was expected to provide positive momentum to stocks. In September 2024, retail Chinese investors were persuaded to put their savings to work as the state instigated a new stimulus package. This triggered a veritable stampede back into the Chinese equity market.
Should I now consider China as a strategic building block in my portfolio, and if so, should I invest onshore or offshore?
China remains stuck in a balance-sheet recession, but Chinese policymakers recognise that a managed and sustainable equity bull market constitutes an effective way to reflate household balance sheets hurt by the housing downturn. Our Group CIO believes that the conditions for the first secular, rather than cyclical, equity bull market in China are slowly falling into place. Our equity analysts forecast similar returns for both on- and offshore markets, as they currently have similar profiles in terms of valuations and liquidity drivers. Their sector exposures are also complementary, with the Hong Kong market being more exposed to the internet while mainland markets focus more on financials and new technology.
With innovation largely driven by the US and China, does Europe still offer compelling investment opportunities?
In a word, yes. Earlier we explained our analysts’ preference for cyclical stocks in Europe in 2026. More specifically, our analysts have a positive stance on Germany given the country’s bias towards cyclical growth sectors and the boost it has received from significant fiscal stimulus. Meanwhile, Swiss equities, on which our analysts also have a positive stance, offer attractive diversification benefits and near-record-low relative valuations.