2026 Global Equity Outlook: Macroeconomic resilience and the AI wave

Stable global economic growth, Expectations of Fed rate cuts, and a softer dollar support risk assets
Still strong AI investment, stable earnings and cash flow underpin valuations
Geopolitical and market uncertainties may affect trends; manage risks through diversification

In 2026, the prospect for global equities remains positive. Stable macroeconomic growth, accommodative monetary policies, and expansionary fiscal measures are expected to lend support to the market. Strong momentum in US consumption and investment continues to propel the economy, while a slowing job market increases expectations for Fed rate cuts. A softening greenback and the ongoing trend of de-dollarisation are helping to channel liquidity into risk assets, providing a solid foundation for the market in the new year.

Comparison of key stock market performance and Fed rates

Data source: Bloomberg, as of 22 December, 2025. The index is reset to a base of 100 in 2020

Solid US economic growth, coupled with a lacklustre labour market, supports expectations of further Fed rate cuts, which should provide further momentum for US equities. The market is concerned by the technology sector's relatively high valuations, but data indicate valuations remain well below the levels seen during the dotcom bubble of 2000. As of November 2025, the 24-month P/E ratio for the US Magnificent 7 stood at 26.8 times, well below the 52 times seen for the seven tech giants back in 2000. Notably, AI capital expenditures by tech firms remains substantial, supported by a confluence of positive factors, such as robust demand, persistent supply bottlenecks, and a favourable financing environment. In stark contrast to 2000, most tech firms today are profitable, exhibit robust business growth, and maintain ample cash reserves. Moreover, AI applications now span areas such as telecommunications, healthcare, finance, and industrials. Meanwhile, the AI supply chain, encompassing semiconductors, data centres, servers, and cooling equipment, is increasingly mature, providing support for long-term structural growth.

In Europe, Germany's push for a large-scale fiscal stimulus plan, which encompasses investments in defence and infrastructure, is expected to shore up the region's economic recovery. Over the past few years, the European market has been impacted by energy price volatility and geopolitics. However, with the implementation of additional fiscal measures, the region's economy is poised for a gradual rebound. In addition, Japan has passed an additional budget of 18.3 trillion yen, which accounts for about 3% of GDP, providing further support to the stock market. These policies are expected to serve as key drivers for European and Japanese markets, offering investors a broader set of opportunities.

The Asian market is equally brimming with potential. A declining US rate trajectory and a weaker dollar lower financing costs and currency risks, while the de-dollarisation trend buoys fund inflows. Mainland China, South Korea, and Taiwan hold a competitive edge in AI development, presenting even more appealing valuations than the US. On the other hand, although still enjoying solid structural growth, India, while enjoying solid structural growth, has relatively limited exposure to AI-related companies, making its investment case less compelling. Overall, the growing global demand for AI is expected to enhance Asia's dominant position in the tech supply chain.

Mainland China's economic data is mixed. While the trade surplus hit a record high, both retail sales and factory output fell short of expectations. Uncertainty in the real estate market has also weighed on investor confidence. The Central Economic Working Conference has called for the continuation of existing monetary and fiscal policies, with the boosting of domestic demand — including driving consumption and investment — as the top priority for 2026. The continued broadening of AI applications to areas like e-commerce and cloud computing, along with the government's push on electric vehicles, automation and green technology could also provide a boon to the industrial and materials sectors.

Taiwan holds a leading position in the global AI server and semiconductor sectors, supporting both exports and corporate profitability. South Korea's semiconductor exports reached a record high, with memory chips continuing to dominate globally. The South Korean government has launched the Value-up Program, encouraging companies to attract investors by enhancing corporate value through dividends and share buybacks. The initiative provides an additional impetus to the stock market.

Overall, risk assets are likely to extend their upward trajectory in 2026. US economic resilience, Europe's fiscal stimulus package, and Japan's supplementary budget are poised to provide momentum to stock markets. AI continues to drive valuations in the technology sector, while expectations of Fed rate cuts and a softer greenback are positive for markets. However, geopolitical and other uncertainties could affect market trends. Investors should remain nimble and diversify their allocations to manage potential risks.