Outlook 2026: Navigate new pathways – Equity strategy

Strategic autonomy in action

With Europe undergoing notable transformation as it seeks to reassert itself in the wake of geopolitical shifts, its equity market is once again positioning itself as a key part of the global landscape. In its quest for increased strategic autonomy, the region is embracing a more expansive fiscal policy, and significant spending initiatives – especially in Germany – are acting as a stimulus that is not just about defence and military hardware, but also revitalising the continent’s industrial base, infrastructure, and capacity for innovation. Alongside fiscal developments, monetary policy also continues to be supportive. With inflation under control, we are expecting dovish stances from both the Bank of England and European Central Bank to continue, further supporting valuations and positive sentiment.

Europe favoured over US

Looking at market structure, we currently see a more favourable situation in Europe than the US, primarily due to lower concentration risks. Unlike the US, where relatively few mega-cap stocks dominate the main indices, Europe currently offers a broader and more diversified set of investment opportunities. Alongside this, we believe European equities are, across sectors, currently more attractively priced than many US counterparts, giving them appeal in terms of both value and growth.

While US equities have rebounded significantly since the sharp declines in the wake of “Liberation Day”, underlying economic data suggests a more fragile economic environment. Indeed, with inflation likely to rise due to the continued effects of elevated tariffs, alongside a subdued growth forecast, the US faces stagflationary risks going into 2026. And while the US Federal Reserve is expected to continue cutting rates, concerns around political pressure on monetary policy decisions still have the potential to undermine market confidence.

In terms of valuations, we currently view US equities as richly priced. Combined with near record levels of concentration, a selective investment approach is required, focusing on companies that justify their premium while reducing exposure to those that lack fundamental support. While the US certainly retains long-term strengths – in particular in AI, a space that still offers ample opportunities for investors while also still dominating stock market related news flow – its current equity landscape demands caution and selectivity.

Indian equities: diverse and liquid

In Asia, India currently stands out as a market with high potential due to multiple tailwinds. Alongside extremely favourable demographics, India’s digital infrastructure is burgeoning – the country accounted for 46% of global real-time digital payments in 2023¹ – and it is the world’s largest supplier of vaccines and generics, with the US accounting for approximately a third of its pharmaceutical exports.² It is also perfectly situated to continue to benefit from “China + 1” strategies as global companies seek to diversify their supply chains and manufacturing bases.

India’s equity market is highly diverse and liquid, sharing many traits with more developed economies. With over 200 stocks exceeding market caps of USD 5 billion, valuations are also low compared to global benchmarks. Consensus estimates for GDP and earnings-per-share growth place India ahead of other emerging markets, reflecting its strong fundamentals, policy stability and vibrant entrepreneurial scene. Despite some potential bumps in the road due to ongoing tensions with the US, we thus expect India to remain an attractive destination for active management for some time to come. Recent setbacks due to US tariffs are also contributing to attractive entry points.

China: hope for stability

In China, the equity outlook is being shaped by a complex mix of head- and tailwinds. On the one hand, we are seeing foreign capital outflows as the future trade relationship with the US remains unclear, alongside some regulatory uncertainty in tech and property, as well as demographic pressures from a rapidly ageing population. However, the Chinese government is responding to these challenges with targeted stimulus, including rate cuts, government-backed purchases of exchange-traded funds (ETFs), and supportive liquidity measures. With these initiatives, we will hopefully see a return of consumer confidence, unlocking high household savings and greater stability in the economy.

China’s equity market remains deep and attractively priced, as well as under-owned by foreign investors, presenting contrarian opportunities for long-term capital flows. The country’s innovation power, particularly in the AI field, remains underappreciated, while the potential for large pension reforms and significant strategic alliances away from the US also contribute to the country’s current appeal to investors. While performance has been volatile – and further news-driven volatility is to be expected – local Chinese equities have performed well in 2025, and the long-term trajectory remains positive, especially for investors focused on innovation, domestic consumption and strategic sectors (see Exhibit 2).

Exhibit 2: Chinese equities have performed strongly since mid-2024

(USD, rebased to 100)

Three regions offer compelling framework

Taking a comparative outlook, Europe offers a structural revaluation opportunity, driven by fiscal expansion, defence spending and supportive monetary policy; India represents a long-term growth engine, combining demographics, digital expansion and further integration into global supply chains; and China represents a long-term opportunity, with deep market potential, leadership in innovation and policy support. Together, these three regions form a compelling equity allocation framework for navigating the shifting global order. With the US facing valuation and policy headwinds, Europe, China and India offer diversified, resilient, and forward-looking investment opportunities.

What is the one thing investors should look out for in 2026?

The complexities of the Chinese market should not detract from the long-term opportunities presented by this energetic, dynamic and innovation-led economy. Deep and attractively priced equity markets, alongside significant policy support, mean the country remains a compelling part of any forward-looking equity allocation framework.