2026 outlook: Blowing bubbles

TALK of an asset market bubble is intensifying. However, we believe this equity market rally is backed by strong earnings growth and cashflows and therefore, it still has legs. High valuations are evident across equities, credit and precious metals. We believe investors need to access as many sources of diversified returns as possible to ensure they are positioned for long-term stability and growth.

There is clearly a tug of war of narratives as we head into 2026. The optimists argue we remain in a bull market supported by strong earnings growth, easing financial conditions and growth-supportive policies. Pessimists argue that valuations are stretched; inflation is stubbornly high, especially in the US; and it is only a matter of time before fiscal challenges result in higher bond yields, undermining support for equity markets.

Why we remain optimists

On balance, we side with the optimists. While the current artificial intelligence (AI) theme is in some regards reminiscent of the “dot com” theme of the late 1990s, there are two key differences in our mind. First, in the late 1990s, there was a clear decoupling between the relative performance of tech sector equities and earnings growth. This has yet to happen today, as the tech sector outperformance is warranted by the strength of earnings.