Proctor Wealth Associates: Outlook for 2026

November 2025

By Will Glyn

2026 Investment Outlook: A Year of Moderation, Selectivity and Global Opportunity

The investment landscape for 2026 is shaped by a familiar paradox: the forces that drove strong returns in 2025 are still very much in play, yet investors should anticipate more moderate gains and a greater need for precision. The year ahead is defined by two themes: broader diversification and more granular identification of opportunities across regions and sectors.

A Year of Steady, Rather Than Spectacular, Returns

Despite higher tariffs, political uncertainty and persistent inflation pressures, 2025 delivered positive returns across almost all major asset classes. Emerging markets performed strongly, gold enjoyed another exceptional year, and the US dollar weakened meaningfully. The real surprise was the depth of economic resilience globally.

In 2026, many of these dynamics should continue, but with less intensity. Equities are expected to rise, emerging markets remain well positioned to lead performance, bonds should deliver positive returns, and the dollar looks set for further structural weakness. The key difference lies in valuations: with most asset classes now priced at historically expensive levels, achieving outsized returns will require more careful positioning.

The Valuation Conundrum

One of the defining developments heading into 2026 is the unprecedented convergence of yields across asset classes. Bank deposits, government bonds, corporate credit and equities all offer returns in roughly the same 4–5% range — the narrowest dispersion seen in decades. This makes asset allocation inherently more nuanced and places greater weight on regional exposure, currency management and bottom-up selection.

Elevated valuations do not imply an imminent correction, but they do limit the scope for multiple expansion. Investors should expect markets to place greater emphasis on earnings delivery and tangible fundamentals rather than sentiment-driven re-rating.

A Resilient Global Backdrop — With Regional Divergence

The macro environment remains broadly supportive. A large majority of global economies are in expansion while central banks continue lowering rates — historically a favourable combination for risk assets.

However, this resilience is uneven:

• United States: Tariff increases and immigration restrictions are adding inflationary pressure, while hiring momentum has slowed. Consumer spending may come under strain, though corporate investment remains strong, with the potential for re-acceleration after a softer patch.
• Europe & Japan: Both regions appear set for improved activity, helped by recovering industrial output and accommodative monetary conditions.
• China: Despite structural headwinds, innovation-led sectors such as technology infrastructure and biotech continue to present selective opportunities.

For investors, the implication is clear: relying heavily on US-centric exposures introduces concentration and currency risk. A more globally balanced approach is becoming increasingly important.

Equity Markets: Focus on Quality and Diversification

Global earnings growth is expected to be close to 9%, and when combined with mild valuation compression, equities should deliver mid-to-high single-digit returns. However, the challenges of elevated concentration and valuations — particularly in the US — mean markets may react more sharply to negative surprises.

Importantly, there are no indications of a bubble. Leverage, sentiment and capital-market activity remain far from overheated. Nonetheless, prudent diversification remains essential.

The AI Story: Still Constructive, But Becoming More Sophisticated

Investment into the AI ecosystem continues at pace, underpinned by strong capital expenditure and resilient earnings visibility. Valuations around 30x earnings appear reasonable given growth prospects. However, market attention is shifting from raw spending to the sustainability and quality of earnings, reinforcing the importance of selectivity.

Notably, AI opportunity is not confined to the US.

• Chinese hyperscalers may monetise AI applications earlier, given structural advantages in infrastructure and energy costs.
• Europe and Japan offer compelling AI-adjacent opportunities in fields such as semiconductors, industrial automation and advanced hardware.

For globally diversified investors — particularly those with multi-currency exposure — balancing US mega-cap exposure with international innovation is increasingly important.

Emerging Markets: The Most Compelling Case for 2026

Several macro forces are aligning in favour of emerging markets: weaker developed-market currencies, declining real rates, recovering global manufacturing, and firm commodity prices. Historically, when these factors coincide, emerging markets significantly outperform developed markets.

A balanced approach to EM exposure is sensible:

• Core allocation – India: Supported by structural growth, improving cyclicals and justified valuation premiums.
• Beta exposure – Latin America (especially Brazil): High real yields, scope for substantial rate cuts and potential rotation from bonds into equities create a powerful backdrop.
• Alpha opportunities – China: Despite macro uncertainty, innovation-driven sectors continue to produce world-leading companies.

Fixed Income: Fair Value, with Opportunities in Select Areas

After a challenging decade for sovereign bonds, yields now look more aligned with long-term fair value. Real interest rates broadly match potential GDP growth, creating a healthier environment for bond investors.

Emerging market debt stands out:

• real yields between 5–10%,
• undervalued currencies, and
• improving credit fundamentals

provide a compelling risk–reward profile.

For investors in low-yield markets, EM corporate bonds and shorter-duration instruments offer particularly strong income potential.

US Treasuries and gilts around 4% deliver reasonable downside protection, though central banks may cut rates less aggressively than markets currently assume.

Currency Outlook: The Dollar’s Structural Weakness

The weakness of the US dollar witnessed in 2025 reflects deeper structural factors rather than short-term fluctuations. Narrowing growth differentials, diminishing interest rate gaps and a policy environment more tolerant of currency depreciation all point to continued softness.

Emerging market currencies stand to benefit most. The euro and sterling may see more modest gains. For expatriates managing assets and liabilities across currencies, this environment should be actively incorporated into allocation decisions.

Sector and Regional Opportunities

Several areas look particularly attractive:

• Europe: Expectations are extremely low, offering scope for re-rating if even minor policy progress is achieved. Industrial, financial and domestically-oriented mid-cap sectors offer the best risk–reward.
• Healthcare: Attractive valuations, favourable innovation cycles and stabilising policy pressures make this a high-quality defensive sector.
• Switzerland: For investors based in Switzerland, domestic equities continue to offer stability without the cost of hedging foreign exposure.
• Defence & infrastructure: Supported by geopolitical realities and increased fiscal commitments.

Managing Risks

Key risks to monitor include:

• the lagged impact of tariffs and trade restrictions,
• continued labour-market softening in the US,
• inflation staying sticky into early 2026.

At the same time, upside risks exist. Additional rate cuts, regulatory easing and a stronger global capex cycle could drive faster-than-expected growth.

Portfolio Implications for 2026

Key priorities for investors include:

• Reducing over-reliance on the US and mitigating concentration risk in global equity indices.
• Increasing emerging market allocations across both equities and fixed income.
• Maintaining equity exposure with realistic return expectations and greater emphasis on selection.
• Using healthcare and high-quality defensives to balance growth allocations.
• Employing EM debt and high-quality corporate bonds for diversification and income.
• Retaining some gold exposure as a hedge, while moderating expectations for further outsized gains.

Conclusion: A Year for Selective, Globally Minded Investors

2026 is likely to echo many of the themes of 2025 — but in a more moderate form. Equities should advance, emerging markets should lead, and the dollar should weaken further. The difference this year lies in the need for greater precision.

The convergence of yields, elevated valuations and pockets of concentration all point to the importance of disciplined diversification. The strongest opportunities are likely to come from regions and sectors that investors have previously overlooked.

The year ahead should reward those who cast their net widely, manage risks deliberately and approach the market with a selective, globally conscious mindset.

Will is an Independent Financial Adviser with over a decade of experience helping expats make the most of their international status.