As investors head into 2026, Fidelity International sees a constructive environment for risk assets, driven by tech-led growth momentum and supportive policy across most markets. Yet deep structural shifts and tensions lurk beneath the surface. Fidelity’s International’s 2026 investment outlook grapples with key topics that should be on every investor’s radar.
A supportive backdrop for risk assets
We enter 2026 amid a supportive macro environment. Growth should be resilient, and policy (both monetary and fiscal) is accommodative. Some of the concerns that plagued the past 12 months have receded – underlying inflation is still high but moderating, and the potential for a sharp, tariff-driven downturn has faded. While risks remain, they appear manageable for now. Further deterioration in the labour market, an inflation uptick, US central bank independence, and the strength of AI capex and earnings cycles all demand vigilance.
Matthew Quaife, Global Head of Multi Asset, at Fidelity International, comments: “While we see positive drivers heading into 2026, the longer-term backdrop is more complex. Beyond the medium-term stability is a creeping global fragmentation, following years of progressive globalisation and debt accumulation. The US’ Liberation Day was itself a manifestation of these structural shifts and has since accelerated a global splintering into regional blocs.
“Accompanying that fragmentation will be further intentional weakening of the US dollar. The value of the dollar is now a strategic policy tool, and as a result we expect its value to depress over the coming years, especially as debates around Fed independence intensify.
“These macro changes will require investors to adopt new thinking around holding US dollar risk. There will undoubtedly be more geopolitical volatility in 2026; gold should provide some protection in this environment. The euro is also looking more attractive, especially as the Fed comes under pressure to cut interest rates further than may be warranted. Fiscal easing and greater defence spending in Germany should support the euro.”
These shifting dynamics will play out well beyond 2026. Looking to the long term, given the weight of US equities in global benchmarks, non-US investors will want to keep in mind whether their current hedge ratios will serve them in a world in which the dollar comes under increasing pressure, not least from US policy.
Outlook on equities
Many years have passed since the success of the US stock market has rested on one central idea. AI is without doubt an all-pervasive trend that will shake the future and which cannot be ignored. It demands investment in more than one sense, and we believe the powerful earnings growth trend it has spurred will continue into 2026.
Niamh Brodie-Machura, Chief Investment Officer, Equities, at Fidelity International, comments: “The changes brought about by new technology will be as dramatic as those of the internet in the 1990s, and in the US tech leaders we have companies with the ammunition necessary to deliver the scale of investment required. In a time of major industrial and technological upheaval, investors sense the opportunity for outsized gains. These can be made from backing the first movers, the leaders of the new or revolutionised industry, as well as the companies that provide this generation’s picks-and-shovels.
“However, the high levels of uncertainty about how the future will actually pan out put a premium on pinpointing the real winners. Many ideas, projects, and companies get funded and valuations have been bid up broadly, and not every company will end up generating the earnings and cashflow to justify it.
“If AI is beginning to work as a business model for more companies – as our analysts and the market valuations suggest – it will do so by delivering productivity gains. It is difficult to see that happening without some movement on corporate layoffs, of which there are already signs. More profits and more stock market gains are a positive story for the economy, but job cuts less so. In addition, consumer staples and discretionary may be only 21% of the S&P compared to 46% for tech and communications – but American consumers themselves account for nearly 70% of US GDP, so weakness in the US consumer would have multiple effects.”
The need for diversification
Brodie-Machura continues, “Heading into 2026, we see real substance and optimism in the fundamentals underpinning the market. We expect the mid-to-high single digit earnings growth of 2025 to strengthen into double digits across all of the major regions we look at in 2026. That includes IT sector profit growth of more than 20%. However, there is a need to diversify risk where many investors have examined their geographical allocations in light of geopolitical events in the past year. Any hiccups in the current generous growth expectations or from politics and policy, would support actual moves in capital.
“The case for Europe has strengthened considerably. Falling inflation, lower interest rates, and fiscal support all provide a supportive backdrop for corporate investment and consumer confidence. Aerospace and defence stocks are benefitting from the re-arm Europe trade. But European companies should not be seen as proxies for the region’s economy. They are global businesses with resilient balance sheets and proven growth profiles.
“China presents a compelling case for investors to take a fresh look, with an attractive combination of cutting-edge innovation, robust policy support and appealing valuations. China increasingly looks reminiscent of the US market in terms of its companies’ progress on technology and innovation – and the gap between the two is rapidly reducing. Yet the positioning is not crowded, valuations are low, and we expect to see the rising adoption of technology and artificial intelligence start to benefit the economy more broadly. Worries about the trade conflict with the US have also cooled and it’s clear that the government understands the importance of fiscal spending as a tool to reboot the market and the economy. Furthermore, the increased focus on ending blistering price wars can help corporate earnings inflect back to meaningful growth. Indicators of a broader bull market are clear to see.”
“Japan and Korea also stand out as sources of optimism. Japan is emerging from the staid years of low inflation and low interest rates. Wages are improving and consumer spending power is growing. Corporate governance reforms have fed the market too and helped spur a copycat process in Korea that is upending years of discount valuations and low dividend payments”.
Inflation is expected to stay structurally higher, which implies higher equity-bond correlations. This supports the case for alternative sources of diversification, such as real assets, currencies, and absolute return strategies.
Asia: Capitalising on technology and corporate reforms
Asian markets weathered 2025 better than expected. Amidst profound technological and geopolitical change, we believe the region’s resilience should not be underestimated.
Matthew Quaife comments: “A diversification trend has pushed global investors to seek alternatives to dollar assets. The weaker dollar, a ballooning fiscal deficit in the US, and Asia’s surprising domestic strength all sharpened the appeal of the region to investors in 2025. While Asia is set to benefit from the diversification trade in the years to come, a series of structural themes are likely to stand out in 2026.
“From China’s DeepSeek and autonomous driving, to South Korea’s memory chips, Asia has proved itself a leader in the AI race. Technological prowess will become an even more important driver of revenues in 2026 after the boost provided by the front-loading of exports fades. Continued strong appetite for AI servers, chips, and datacentre equipment should partially offset the downward pressure on exports. The excitement over China's rapid catchup in AI capabilities has seen Chinese tech stocks shine in 2025 – not just offshore internet names but also domestic shares. China has developed its own AI eco-system in response to trade restrictions, making it less dependent on the West. China’s vast domestic market, policy tailwinds, and increasingly tech-savvy consumers should drive broader and faster AI adoption, supporting tech stocks in 2026 and beyond.
“Markets backed by a critical position in the semiconductor supply chain are having their moment too. Taiwanese and Korean chip makers, for example, should do well in 2026 thanks to a strong upcycle evidenced by the sector’s rising prices and sales volumes, driven by the AI boom.
“In terms of policy stance within Asia, the region is likely to ease as higher effective tariffs and the fading momentum of front-loading weigh on growth. For most of the region, inflation remains a non-issue supported by low energy prices. The resumption of cuts by the US Federal Reserve should soften concerns about interest rate differentials with the US, prompting some Asian central banks to loosen monetary policy further.
“As a result, Asia’s local currency government bonds are likely to see a rise in demand, particularly high-quality sovereigns such as South Korea. They show low to moderate correlations with major global peers, making the asset class a good diversification tool. Ongoing fiscal stimulus is expected to be rolled out across the region, as well. In addition, Asia’s high yield bonds are set to draw wider attention. The asset class appears healthier than before, with a more balanced and diversified pool of issuers. It can offer attractive risk-adjusted returns, supported by low default rates, advantageous monetary and fiscal policies, and investor demand for stable carry.”
“Finally, we turn to evolving corporate reforms. From China to South Korea and Japan, where companies have long been criticised for poor corporate governance, an increasing focus on shareholder returns is expected in 2026.”
The global economic and trade landscape is shifting rapidly. Investors will need to be nimble and attuned to further volatility or geopolitical surprises. But supportive policy measures, technological advantages, and favourable macro conditions should hold Asia in good stead for 2026.
