Top convictions:
- Accommodative fiscal and monetary policy, and decent earnings, mean we are risk-on for equities. Select emerging market equities in particular look attractive for 2026
- The depreciation of the dollar should continue to support emerging market (EM) local currency bonds; we target markets where elevated real yields provide attractive valuations
- Gold, absolute return strategies, and private assets should provide diversified resilience for portfolios in the year ahead
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. Risks remain. 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. For now, they appear manageable.
It is a positivity reflected in the bottom-up analysis of Fidelity International’s investment analysts. “With rates starting to drop, I expect financing to become more accessible and cheaper,” says Robert Glatt, a fixed income analyst who specialises in the retail sector.
Thomas Goldthorpe, a financials-focused equities analysts, points to “lower rates and more pro-business Federal government policies” supporting companies throughout 2026. Our analysts also anticipate stable cost increases on average at the companies they cover over the next six months, which could prove supportive for growth.
The AI story is clear: the technology promises to improve productivity and raise corporate margins.
Stable cost increases could support growth
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Chart shows proportion of response reporting costs are increasing minus those reporting costs are decreasing; significant increases and significant decreases receive a higher weighting. Question: "What are your expectations for the following over the next 6 months compared to current levels?". Source: Fidelity International Analyst Survey, October 2025.
Yet 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. US President Donald Trump’s Liberation Day was itself a manifestation of these structural shifts and has since accelerated a global splintering into regional blocs.
While President Trump has retreated from the maximalist position, he laid out in the Rose Garden in April, the US tariff and trade policy is now the most restrictive it’s been since the second world war.
The new abnormal
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Source: Fidelity International, FIL Global Macro Team calculations, Macrobond, USITC, October 2025
Accompanying that fragmentation will be further intentional weakening of the US dollar. President Trump has sought to lower the US trade deficit with the rest of the world, breaking the cycle of foreign capital recycling back into US dollar assets. He would rather they invest in productive assets like factories and infrastructure projects, rather than unproductive Treasury bills, which are a favourite of foreign reserve managers.
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 in May when Chair Jerome Powell steps down.
Building resilience
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.
Income strategies provide another way to buffer portfolios. As well as their more stabilised cash flows, dividend-focused investments will naturally diversify allocations beyond the growth-heavy tech stocks upon which investors have grown reliant.
Growth sentiment is improving in Germany and will support the euro
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Source: Fidelity International, September 2025. Views reflect a typical time horizon of 12-18 months and provide a broad starting point for asset allocation decisions. However, they do not reflect current positions for investment strategies, which will be implemented according to specific objectives and parameters. Chart source: Fidelity International, LSEG Workspace, September 2025.
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.
We also expect inflation 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.
Where to find risk
Any depreciation of the dollar should be a boon to emerging markets. EM assets are one of our central convictions for 2026.
Equities in places like South Korea and South Africa are re-rating higher, with improving fundamentals and attractive valuations relative to the rest of the world. China looks compelling for 2026 too with its ongoing policy support creating specific opportunities – see our Asia outlook for more on this.
Likewise, EM local currency debt, particularly in Latin America, offers attractive real yields and steep curves. There are plenty of idiosyncratic pockets of interest, with Brazil being a particular favourite (see our fixed income outlook).
In the credit space, spreads remain tight, and we are approaching the later stages of the cycle in the US. This leads us to shorter-dated credit as a defensive way to extract carry. From a multi asset perspective, we generally prefer high yield to investment grade as credit fundamentals remain healthy.
Many emerging markets are attractively valued
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AI alert
The AI story is clear: the technology promises to improve productivity and raise corporate margins. It’s on this basis that the market is willing to sustain higher valuations across the AI chain.
Yet this chain runs far, and there are different ways to play the AI theme through 2026. As well as the well-known core developers, there are companies that provide the infrastructure and platforms without which AI deployment would be impossible, plus the chipmakers themselves.
Downstream of those is the ‘physical’ AI theme, which could boom through the next 12 months – companies producing AI-driven robotics and factory automation processes, for example (see our equities outlook and research report on the topic). Then there are the huge electricity demands, which will require around US$21 trillion of investment in the power grid by 2050, resulting in nine million kilometres of additional transmission network.1 Consider too the materials required to build all of this: metals like copper and uranium will be in high demand over the coming years.
We are looking to take advantage across all parts of the AI value chain, remaining invested in the hyperscalers and chip manufacturers, but also finding value among those underlying, cheaper beneficiaries that are just starting to catch up.
Creative destruction
This generally constructive environment for risk comes amid a structural disruption which will likely affect asset allocation well beyond the next 12 months. Much has been upended in 2025 and investors need to be more attentive to where they take risk in 2026. But this need not mean compromising on returns. The landscape has changed. We approach it risk-on, with a clear eye on market, macro, and geopolitical imbalances and their impact on portfolio design.
