To navigate markets with clarity, cut through the noise

CERTAINTY will be hard to come by in 2026. As we start the year, markets are being met with seemingly a new geopolitical or market-impacting development every day.

Amid these headlines, growing fears of an economic slowdown, and conjecture around artificial intelligence, it is understandable for investors to want to seek perceived safety in “cheap” investments or laggards. But it is our view that investors should remain in high-quality investments.

As a CIO team, our job is to understand what is signal and what is noise, and ensure the portfolios we manage reflect our highest-conviction views that balance growth with risk management. But how do we do this in a world of uncertainty? How can we position portfolios to be prepared for the unexpected? Where can investors find opportunities that are not already appreciated by the marketplace?

Constructive on global macroeconomy

First, we find that the global macroeconomy remains more constructive than headlines suggest. Despite persistent inflation and geopolitical uncertainty, advanced economies slowed only modestly in 2025, and we head into 2026 on a solid footing.

One key factor at play is the strength of corporate profits, which continue to support business investment and employment, holding a global downturn at bay.

Another factor is that much of last year’s worst-case scenario – particularly with respect to tariffs – seems to have been avoided, clearing the way for business leaders and consumers to move forward with purchase and investment decisions.

In parts of Asia, for example, domestic demand is strengthening alongside global trade normalisation, providing a more balanced growth profile as we move through the year.

This year should also benefit from policy support announced in 2025. On the monetary front, last year’s rate cuts across major economies are poised to lend further support in the first quarter even as central banks remain vigilant on price stability.

Fiscal support is more selective, but notable examples include front-loaded spending in the UK, targeted investment incentives across Asia, and region-specific measures aimed at supporting consumption and strategic industries.

Embracing tech and AI

Second, we are focused on investments supported by strong fundamentals, and technology and artificial intelligence remain central to our long-term view. While some market commentary has questioned the durability of technology leadership, company results tell a different story. Strong earnings, robust cash flows, and continued investment in AI infrastructure point to technology’s enduring role as a core growth driver.

To be bullish on global equities without embracing the technology sector’s contribution would be difficult. But given lofty valuations, growing concerns about the circularity of AI investments, and increasing use of debt-financing, where can investors hide while still maintaining exposure?

One way is to focus on where supply is constrained. We saw this in 2025 with strong performance in Korean and Taiwanese equity markets, driven in part by the powerful ramp up in memory and semiconductor demand. As AI continues to evolve, we will focus on these and other bottlenecks as one driver of earnings growth.

We balance this against positions in markets that have exposure to secular growth, namely US large cap equities, which inherently have exposure to the hyperscalers benefiting from and investing in AI, as well as Chinese equities, where the government remains committed to supporting the innovation economy.

In 2025, earnings growth made up 88 per cent of the S&P 500’s total return and over half of MSCI Emerging Markets’ return, which is dominated by Emerging Asia.

In contrast, European market performance last year was predominantly driven by valuation expansion, and earnings growth accounted for only 13 per cent of Stoxx 600 returns. We expect this to continue given the strong results we have seen among technology and AI companies.

Valuations in perspective

But what of the high valuations for these companies? For us, valuations are part of our investing process, but not the driver of our conviction. There is little evidence that valuations help predict forward returns, especially in the near term.

Citi has run analysis showing that there is little to no predictive relationship between P/E ratios and near-term forward returns. Investors have experienced this repeatedly over the last 15 years. An investor focused on only purchasing the three cheapest sectors each year would have underperformed an investor buying the three most expensive sectors by 105 percentage points.

Furthermore, today’s valuations are supported by structurally higher profit margins and reflect a change in market composition, more weighted towards technology companies, which typically have higher margins and valuations than in the past.

This is not to say we don’t see risks. Remaining focused on quality and earnings visibility should help investors remain invested through volatility. However, geopolitical uncertainty and policy noise are likely to persist, and portfolios must be built with resilience in mind.

To this end, investors may consider adding gold, which has historically provided protection against inflation and geopolitical risks. Given concerns about fiscal deficits across advanced economies, we are also advising clients to reduce exposures to long-term bonds.

In 2026, markets are unlikely to follow a single narrative. We believe investors who remain grounded in data, global in perspective, and disciplined in process will be best positioned to navigate the headwinds that are coming our way.

The writer is head of portfolio advisory, Citi Wealth