As we move into the second half of 2026, investors face a global backdrop that is complex but not without opportunity. Growth is moderating in most major economies, central banks are navigating what many are calling "the final mile" of the post-pandemic inflation cycle, and geopolitical uncertainty — from ongoing regional conflicts to trade policy shifts — remains elevated. Against this backdrop, thoughtful portfolio positioning matters more than ever.
The global economic context
The broad narrative for 2026 has been one of resilience meeting gravity. Economies that held up better than feared in 2024 and 2025 are now showing signs of normalisation. Consumer spending is softening as excess savings are depleted, corporate investment is being recalibrated around higher financing costs, and labour markets, while still robust in many regions, are no longer as tight as they were at the peak.
Central banks in the US, UK, and eurozone have made meaningful progress on inflation, but the final stretch is proving stubborn. Services inflation in particular has proven stickier than headline CPI figures suggest. Most central banks are likely to move cautiously — any rate cuts in H2 2026 will be measured and data-dependent. The era of aggressive monetary tightening appears to be behind us; the era of rapid easing is not yet here.
Emerging markets present a more varied picture. Parts of Asia continue to deliver solid growth, supported by domestic consumption and ongoing manufacturing relocation from China. Latin America faces commodity-price headwinds in some countries. Frontier markets in Africa and the Middle East are growing but carry elevated political and currency risk.
Asset class views
Equities
US equities — Valuations in the US market remain extended relative to most historical periods and most other markets. The technology sector in particular has benefited from AI-driven earnings optimism, concentrating index returns in a relatively small number of mega-cap names. This is not to say US equities will fall — extended valuations can persist for long periods — but it does suggest that the risk/reward is less compelling than it was two or three years ago, and that forward returns from current levels are likely to be more modest.
European equities — By contrast, European equities trade at a meaningful discount to US peers on most valuation metrics. European companies are less concentrated in high-multiple technology names and offer attractive dividend yields. The region faces its own headwinds — slower structural growth, energy transition costs, competitiveness concerns — but for patient investors, the valuation gap relative to the US appears worth considering.
Emerging market equities — EM equities offer potentially attractive long-run returns given demographic tailwinds and development trajectories, but require selectivity. India, parts of Southeast Asia, and select Latin American markets stand out as more interesting than the broad EM index, which has historically been heavily influenced by China. Currency risk and political risk must be factored in.
Fixed income
After a decade in which bonds offered almost nothing to investors in yield terms, fixed income has reclaimed its role as a genuine contributor to portfolio returns. Investment-grade bond yields in the US and UK are at levels not seen for many years. For investors who can accept some duration risk, locking in current yields — either directly or through diversified bond funds — represents a more attractive option than at any point since before the 2008 financial crisis.
Short-duration bonds and money market instruments continue to offer returns well above inflation in many major currencies, reducing the opportunity cost of holding cash or near-cash positions. This is a change from the zero-rate environment that defined much of the 2010s.
High-yield (sub-investment-grade) bonds offer higher income but carry credit risk that could materialise if the economic slowdown deepens. Selectivity and diversification are essential in this part of the fixed income universe.
Alternatives
Infrastructure — Listed and unlisted infrastructure assets — toll roads, airports, utilities, data centres, energy transition assets — have attracted significant investor interest. Many infrastructure assets are linked to inflation through regulatory frameworks, providing a natural hedge. Demand for data centre infrastructure in particular is growing rapidly, driven by AI compute requirements.
Private credit — The retreat of traditional banks from certain lending markets has created a significant opportunity for private credit funds. Returns in private credit have been attractive relative to public market equivalents, though investors must accept illiquidity. This asset class is most suitable for investors with long time horizons and appropriate liquidity buffers elsewhere.
Hedge funds — Performance dispersion across the hedge fund universe remains wide. Macro strategies have performed well in volatile rate environments. Equity long/short funds have benefited from greater market divergence between sectors. Selection remains critical.
Key risks to monitor
A harder economic landing than expected. Central banks have tightened policy significantly. The full effect of higher rates takes time to work through the economy. If corporate earnings deteriorate sharply or unemployment rises faster than anticipated, markets that are priced for a soft landing could reprice quickly.
Geopolitical escalation. Regional conflicts, US–China tensions, and unpredictable trade policy decisions could all cause market dislocations that are difficult to predict or hedge against. Holding a degree of diversification across geographies reduces but does not eliminate this risk.
Inflation re-acceleration. If services inflation proves more persistent than expected, or if energy prices spike due to supply shocks, central banks could find themselves unable to ease policy. A "higher for longer" rate environment would particularly affect long-duration assets and highly leveraged positions.
Valuation concentration unwind. The heavy concentration of major equity indices in a small number of mega-cap technology companies creates index-level risk if those companies disappoint on earnings or regulation. Investors who hold only passive index funds may be more concentrated than they realise.
Currency risk. For internationally mobile investors, currency movements can have as much impact on portfolio returns as asset class performance. Intentional currency diversification or hedging should be part of the planning process.
Portfolio positioning
No single allocation suits all investors. But some general principles apply in the current environment:
Diversify genuinely. A portfolio concentrated in US equities — even through a "global" index that is 65%+ US — is not as diversified as it looks. Consider increasing exposure to non-US developed markets and selective emerging markets.
Bonds deserve a place again. After years in which bonds offered low yields and still carried inflation risk, current yield levels make them worth holding for investors who need income or who wish to reduce overall portfolio volatility.
Maintain liquidity. In an uncertain environment, having accessible cash or near-cash positions provides both peace of mind and the ability to act on opportunities if markets sell off.
Review leverage. Higher borrowing costs affect the economics of leveraged strategies — property, margin accounts, or any investment financed with debt. Ensure that leverage levels are appropriate for the current rate environment.
Take a long view. Market timing is notoriously difficult. Investors who responded to headlines by moving to cash in 2022 and 2023 often missed the subsequent recoveries. A long-term, diversified, systematically rebalanced portfolio continues to be the most robust approach for most investors.
This article reflects our general market views as of June 2026 and is for information purposes only. It does not constitute personal investment advice. The value of investments can fall as well as rise and you may get back less than you invest. Past performance is not a guide to future returns. Global Investments recommends seeking independent financial advice tailored to your individual circumstances — contact us to speak with a member of our team.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.