Macro
Investment Perspectives Mid-Year Outlook 2026: Rally vs Reality
15 min read 24 Jun 26
For more information on the financial terms used in this article, please consult the glossary.
Overview
A new rulebook, or lack thereof
Fabiana Fedeli
CIO Equities, Multi Asset and Sustainability
These are some of the most complex markets Fabiana Fedeli has seen in a while, amid extreme equity price moves, and with different asset classes seemingly following different, often contradicting, drivers. Despite higher energy prices, equities have been strong year to date, outperforming bonds, but performance has been concentrated around the AI theme.
Extreme price moves in equity markets have been a feature this year. AI-related stocks, in particular, have seen extreme price reactions. There are pockets where stocks have reached excessive valuations and areas where we’ve seen, what we consider to be, unwarranted share price falls, says Fedeli.
The dichotomy between perceived AI ‘winners’ or beneficiaries and AI ‘losers’ means there is a significant opportunity for active investors to rotate exposure within the AI theme, which permeates across sectors. Fedeli points to finding attractive opportunities among the software and services companies that have sold off this year amid concerns around the potential impact of AI on their business models. Not all will be winners, but some will be able to successfully integrate AI agents as a feature of their platform, rather than being replaced by them.
While the latest earnings season has been robust, the world could face higher energy prices into 2027, potentially weighing on global demand. Fedeli notes that this risk is yet to be fully priced into equity markets, and warns there’s a risk that optimism is leading to complacency. Rather than running for the exits, however, she points to the need to be selective with investments and to take into consideration the resilience of companies to higher energy prices and a potential demand slowdown.
Despite the potential risks and challenges ahead, Fedeli says this is a good time to be an active investor, with price dislocations creating stock-specific opportunities. She comments, “an active approach allows for a more selective choice of the companies that we believe will be the winners of the structural changes we are witnessing at the moment”. She highlights several structural themes such as infrastructure, the low carbon economy and AI-enabled innovation, that are currently benefiting from capital flows, and she expects will continue to attract future investment.
Meanwhile, Fedeli concludes, “however the rulebook gets re-written, generating alpha in this environment requires a combination of sticking to well-proven investment processes, and adapting to what we believe are structural changes unfolding”. What remains paramount is “fully understanding the growth drivers and exposures of the underlying companies we invest in”.
Global forces, selective opportunities
Andrew Chorlton
CIO, Fixed Income
Positive real (inflation-adjusted) yields mean fixed income could once again play a genuine role in portfolios as a source of growth and return, according to Andrew Chorlton. He notes that this is a meaningful shift from the decade of ultra-low interest rates following the financial crisis and underpins the positive outlook for bonds going into the second half of 2026.
However, inflation remains the key complication. The conflict-driven spike in energy prices poses a problem for central bankers; cutting rates too early risks undermining central bank credibility, but the recent memory of 2022’s runaway inflation will be top of mind, possibly leading them to err on the side of caution.
Recent years have shown investors have expected lower interest rates than those delivered by central banks. Chorlton notes “the opportunity therefore lies not in making bold calls on the path of interest rates but in using the dispersion created by divergent central bank paths, fiscal positions and inflation dynamics.” Government bonds remain central to the opportunity set.
Chorlton also points out that in this environment, inflation protection deserves renewed attention, with tools such as inflation-linked bonds, yield curve exposure and credit risk all deserving consideration.
Credit spreads (the additional yield provided by a corporate bond over an equivalent risk-free government bond) remain near historically low levels, meaning the margin for error is limited. However, by remaining invested, we can earn income today, preserve resilience if spreads widen and have the flexibility to add risk when valuations become more attractive.
Other areas of interest are emerging market debt and Asian fixed income. Both offer diversification in an uncertain macro environment, while also providing access to income.
“Fixed income offers a far better starting point than it has for many years, but the opportunity set is complex. Investors need to separate income from credit spread risk, nominal yield from real yield, and broad market exposure from genuine relative value,” Chorlton summarises.
Selectivity defining private markets in 2026
Emmanuel Deblanc
CIO, Private Markets
Private markets entered 2026 constructively. What has transpired is an uneven recovery, demonstrating that private markets are not a singular asset class.
Private credit stands out as one of the more resilient areas of the market, Deblanc notes. A steady appetite for floating-rate income and the strengthening of banks have both provided strong support. Furthermore, in this uncertain environment, the close relationship between lenders and borrowers can provide early warning of potential stress, helping to avoid defaults. This demonstrates the “under-appreciated defensive nature of private credit,” Deblanc adds.
A further bright spot has been infrastructure lending. During 2026 so far, strong institutional demand was supported by long-term cash flows, inflation linkage and underlying secular drivers (data centre build-outs, energy transition etc).
The private equity story is more mixed. Deblanc highlights an uptick in transaction activity, while sponsors have also started to return, encouraged by greater financing availability and better earnings visibility. However, macro volatility and the potential for ‘high-for-longer' interest rates has tempered positive sentiment. The Initial Public Offering market has seen an improvement in activity but there remains a large ‘exit backlog’ of private equity firms looking to sell their stakes in companies.
The path for inflation, policy rates and credit spreads will largely dictate the direction of private markets over the next 12 months. Deblanc explains, “even modest further easing would help valuations, debt affordability and exit activity. More likely though is the ‘higher-for-longer’ scenario which would reward cash-generative assets and conservative capital structures.”
Overall, for the remainder of 2026, private markets should remain attractive, but not uniformly so. The rest of this year is likely to reward selectivity, liquidity discipline, and strategic exposure to structural themes rather than a reliance on cyclical recovery alone.
Richard Gwilliam
Head of Property Research
The sense of déjà vu in real estate markets is hard to ignore. Just as recovery begins to gain momentum, another external shock intervenes. Today, geopolitical tensions centred on Iran are reinforcing uncertainty and again slowing the pace of improvement. As Gwilliam says, “Recovery has slowed, but importantly, it has not reversed.”
For real estate, the pattern is familiar. Transaction activity softens, pricing becomes more contested and sentiment turns more cautious. The optimism that characterised the start of the year has moderated. Yet what stands out is how this uncertainty interacts with underlying fundamentals – shaping yields, influencing values and revealing areas of resilience within the asset class.
Higher borrowing costs and elevated bond yields remain a key constraint. The recovery was always expected to be primarily income‑driven, with only limited scope for yield compression, and the current environment reinforces that dynamic. Capital value recovery is therefore gradual, with investor behaviour becoming increasingly selective and pricing more sensitive to the rate backdrop.
At the same time, fundamentals are asserting themselves. Prolonged underdevelopment has constrained supply, leaving a subdued pipeline across living, prime retail and high quality offices. This is feeding into occupier markets, where vacancy is stabilising or falling and demand is increasingly concentrated in higher quality assets. Tight rental markets are supporting income resilience, with prime rents rising across most sectors.
The market is becoming more differentiated as these dynamics unfold, with performance increasingly driven by asset‑level characteristics such as quality, location and income security.
Overall, the recovery appears dampened rather than derailed. The cycle is progressing through a gradual and uneven adjustment, with uncertainty continuing to weigh on yields and pricing, while constrained supply and resilient income provide a stabilising force. Looking ahead, the focus should shift from timing recovery to understanding how these structural forces shape outcomes for assets over the cycle.
The views expressed in this webpage should not be taken as a recommendation, advice or forecast, nor a recommendation to purchase or sell any specific security. Investments involve risks and may not be suitable for all investors. Past performance is not indicative of future results. The value of investments may go up or down and is not guaranteed. You may not recover the full amount you invested. If you are in any doubt about the contents of this document, you should seek independent professional advice.