Market Views
2026 Capital Market Assumptions
Ruptures across geopolitics, technology and energy are reshaping markets.
The investment backdrop is no longer defined by a single growth model or a stable policy environment. Instead, the next decade is likely to feature more uneven growth, stickier inflation and a higher level of policy intervention.
2026 Capital Market Assumptions - Adapting to ruptures - M. Defend - EN
5 forces shaping the next decade
Geo-economic fragmentation, climate risk from a delayed energy transition, and AI adoption are reshaping the macro landscape. Strategic autonomy is becoming a national priority, driving fiscal spending and capital reallocation.
Elevated debt levels and structurally higher long-end rates are likely to persist. Policy frameworks may become more constrained by debt dynamics, with investors increasingly looking to domestic markets as yields improve.
EM, Indian and private equities offer attractive return potential. Pair these with global government bonds, investment grade credit and EM debt for resilience. AI and the green transition will generate some of the most visible long-run opportunities.
Higher nominal discount rates cap valuation multiples. Returns will rely more on income and operational value creation. Infrastructure and private credit benefit from rising investment needs; European private equity looks more compelling than US private equity on valuation grounds.
Gold takes on a more prominent strategic role, supporting diversification, reflecting its position in the global reserve system and providing a hedge against fiscal dominance and gradual erosion in USD dominance.
Turning fragmentation into growth
Rupture can create opportunities for policymakers. Governments may support reshoring, capital formation and productivity through targeted industrial policy, strategic buffers and renewed investment in education, health and retraining. |
AI is accelerating technological progress and may support productivity, ease labour shortages and help offset the drag from ageing populations. The pace of progress will depend on countriesâ ability to innovate and adopt AI effectively. |
A timely Net Zero pathway looks less likely, with a delayed transition becoming more probable. Energy-dependent countries may need to accelerate their own transition or adopt more sustainable options. |
Strategic autonomy has become more important for national security and may help reduce economic volatility. While it may raise short-term costs, it could support more resilient growth over the long term. |
Implications for you
In a more fragmented market environment, portfolio construction may need to focus less on broad exposure and more on resilience, valuation discipline and diversification.
Balance local & global
- Japan: Strongest improvement in returns.
- Euro: Core allocation for EUR investors.
- US: Attractive carry, but a weak USD reduces appeal for international investors.
- Investment grade credit: Among the best risk-return trade-offs.
- High yield: Carry remains, but tighter spreads require greater selectivity.
- EM: Best return potential in fixed income.
More EM, Europe & Japan
- US: Resilient, but high valuations and concentration risk remain.
- Japan: Best risk-return profile across currencies.
- Europe: Attractive returns, supported by reforms and industrial momentum.
- EM: Preferred over developed markets.
- China: More selective, with upside from tech and policy support.
- India: Strong structural growth story.
Time for selectivity
- Hedge funds*: Well-suited for a high-dispersion world.
- Private debt: Attractive carry, but high selectivity needed.
- Real estate: Income-led recovery.
- Gold: Preferred during geopolitical shifts.
- Infrastructure: Favoured for EUR investors.
- Private equity: Strong returns, with Europe preferred.
*US Direct Lending is considering leverage on the fund. âHedge Fundsâ refers to a Fund of Hedge Funds.
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Capital market assumptions 2026
Adapting to Ruptures - Diversification is the Key to this New Era - Outerblue convictions
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