Off the starting blocks

Geopolitics taking centre stage once again

The year begins like a runner launching from the starting blocks: momentum building, uncertainty ahead and success determined by preparation. We recently published our 2026 year-ahead outlook, but markets don’t stand still – and neither do we.

Recent developments, such as the US removal of Nicolás Maduro in Venezuela, underscore a recurring lesson: geopolitics matter, but we think reacting to every headline is a backward-looking approach. By the time you act, markets have often already moved.

Take Venezuela. At face value, more oil availability should mean lower oil prices, which could trigger disinflation and more aggressive central bank rate cuts. It seems logical but it’s not playing out in reality, maybe because oil is hard to extract in Venezuela. With hindsight, it’s easy to spot what’s turned out to be right or wrong, but it’s much harder in real time. The same applies to the many scenarios one can construct for Greenland or any other geopolitical issue.

That’s why our focus is preparation, not prediction. We make forward-looking decisions in the context of our strategy: broad diversification to spread risks and capture opportunities, coupled with tactical asset allocation changes when there’s high conviction. 

A market backdrop in transition

Trade uncertainty is receding, reducing volatility and increasing confidence among businesses and investors. This is why we now expect faster economic growth than we did only three or six months ago.

Japan is hiking rates, but most other central banks are cutting, easing conditions for spending and investment. At the same time, governments are directing capital towards infrastructure, defence and strategic sectors. Together, these policies create the most supportive backdrop for growth in years.

AI spending is one of the most powerful secular forces in today’s outlook. And unlike past technology cycles, like the dot.com boom turned bust, the market leaders are funding their spending with genuine profit growth, not just speculative capital. Valuations are on the demanding side, but we don’t think it’s a bubble at this stage.

How we’re positioned today

Our strategy reflects our outlook views for the next 12 months. We remain moderately overweight equities and underweight bonds, focusing on regions where valuations align with fundamentals and growth prospects. This reflects confidence that supportive policies and structural themes will continue to underpin corporate earnings.

Within equities, we are slightly overweight in the US, Europe and emerging markets. These geographies offer diversified exposure to complementary growth drivers. The US allows investors to gain exposure to long-term growth and AI; Europe combines attractive valuations with infrastructure and defence spending; emerging markets benefit from attractive valuations, dollar weakness and long-term growth.

In bonds, we’ve sold short-dated European government bonds as we believe the European Central Bank is unlikely to cut rates. With the proceeds, we’ve bought longer-dated ones across Europe and the US, where yields are now more attractive. Despite the purchase, we’re still underweight US Treasuries because of the risks from high US debt levels. We’ve also sold some of our global investment-grade corporate bonds as valuations are becoming more demanding.

Looking ahead

Geopolitical surprises will continue to shape markets. Isolated events can have deeper implications and quickly alter sentiment and asset prices. This is why we continue to hold gold, commodities, inflation-linked bonds and other strategic diversifiers.

Given recent geopolitical events and a good start to the year for markets, we’ve also extended our US equity warrant – an ‘insurance’ instrument that appreciates when US equities fall (where client knowledge and experience, and investor guidelines and regulations, permit).

The story for 2026 is one of progress with pragmatism: growth potential alongside uncertainty. Policy shifts and technological investment create opportunities, but geopolitical fragmentation reminds us that markets rarely move in straight lines.