In a Nutshell
Economic Outlook
• The ceasefire in Iran has removed the worst-case scenario for the global economy, reducing the risk of a lasting energy shock and easing inflation tensions.
• The next steps from the main central banks will command market attention, especially in the United States under new Fed Chair Kevin Warsh, whose more hawkish stance and limited use of forward guidance reinforce the importance of incoming data.
• The path of inflation will depend heavily on the pass-through from lower oil prices and broader disinflation trends, while growth could still surprise on the upside, creating a more supportive investment backdrop than feared earlier in the year.
Market Environment
• Market dynamics remain broadly constructive, with most major asset classes and equity indices still in upward trends and trading above key moving averages, without clear signs of technical excess at this stage.
• Recent capital issuance, including IPOs and debt supply, suggests that market windows are open and risk appetite remains solid, even if issuance activity also points to a more mature phase of the cycle.
• Sentiment has clearly improved and is trending back toward relatively high levels, but some divergences across indicators suggest there is less room for additional inflows and incremental risk-taking than earlier in the rally.
Key Risks
• A more aggressive and less well telegraphed tightening cycle in the U.S., under a hawkish Fed chair, could trigger nasty dislocations if inflation does not fully reflect lower energy prices.
• Limited inflation pass through despite falling headline inputs would keep real rates high and prolong restrictive policy, increasing recession and valuation compression risk.
• Excess supply of primary capital (IPOs and debt) at lofty valuations may not be fully absorbed, raising the odds of issuance indigestion, wider spreads and weaker post listing performance.
• With sentiment elevated, there is less room for fresh inflows and incremental risk taking, leaving markets more vulnerable to sharp, positioning driven corrections.
Investment Implications
• Resilient growth, easing inflation and still orderly market trends keep the backdrop constructive for risk assets in the second half of 2026.
• In fixed income, the focus shifts to selective credit, renewed front end sovereign exposure for carry and convexity, and more insulated yielding pockets such as Nordic high yield.
• With valuations rich and the cycle more mature, it is sensible to lean more on liquid alternatives and targeted risk taking rather than pure beta.
• Reduced geopolitical tail risk, a stronger U.S. dollar and higher real rates argue for trimming gold and treating precious metals more tactically.
2H 2026 Investment Convictions
#1 – Short-Duration DM Government Bonds: In a market fixated on equities, AI and credit carry, high quality short dated government bonds in the U.S., eurozone and UK offer a boring but beautiful risk reward. Yields are meaningfully higher than in the post pandemic era, duration risk is limited, and they provide valuable optionality if growth or risk sentiment wobble.
#2 – Nordic High Yield: Nordic high yield combines attractive yields (around 8–9%) with short duration and growing market depth, offering equity like return potential with credit rather than equity risk. The market has matured structurally and enters 2026 with low prices after 2025 oversupply, supported by solid refinancing demand into an economic upswing.
#3 – U.S. Mid-Caps Long/Short Equity: U.S. mid caps show rich dispersion between AI winners, cyclicals and structurally challenged names, making them a fertile hunting ground for long/short stock selection. A long/short approach captures the earnings and AI capex story while hedging index level valuation and policy risks—well suited to a late cycle, higher for longer rate backdrop.
#4 – Emerging Market Equities: EM equities are geared to the AI and semiconductor cycle via North Asia and benefit from improving terms of trade and stabilizing inflation in many economies. Valuations remain at a discount to developed markets, and a mix of resilient global growth, a gradually softer U.S. dollar and selective reform argue for a constructive stance, especially in quality, export led and reform stories.
#5 – Japanese Yen: The yen sits near multi decade lows just as the BoJ cautiously normalizes policy and domestic inflation becomes more durable, creating asymmetric medium term upside. As global growth stabilizes and rate differentials narrow, even modest BoJ tightening or a risk off shift could trigger sizeable FX mean reversion, while yen strength also hedges equity and credit portfolios against renewed geopolitical shocks.
Table of contents
- OUTLOOK 2026 : IN A NUTSHELL
- 2H 2026 : INVESTMENT CONVICTIONS
- 1H 2026 MACRO REVIEW : KEY HIGHLIGHTS
- MARKET PERFORMANCE 2026 : EQUITIES MAINTAINING MOMENTUM 1H2026
- SCORECARD 2H 2026
- OUTLOOK 2H 2026
- ALLOCATION VIEWS
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