Equity Outlook: Reaching for the stars

Since our last edition the sheer pace of change and development has remained astounding, and for professional investors, exhilarating at the same time. The fury of the Iran war has abated as we hoped, so far with a relatively benign impact on the wider global economy. The technology sector has rocketed through a breathtaking 10-week rally, topped with the record-breaking SpaceX IPO.

Combined with still strong US economic data, sentiment remains constructive and so is our base case for equity markets. There is a lot of excess cash in the system which the real economy cannot easily absorb; record-high profit margins fuel broad-based strong earnings momentum, and consumer spending remains strong thanks to the wealth effect and tax incentives.

However, the market looks expensive on just about all traditional valuation metrics. And it would not be the first time that high-profile mega-cap IPOs herald the top of a bull market. When the Bank for International Settlements, the central bank of central banks, warns about ‘shadow borrowing’ and ‘circular finance’ in the AI community of companies, we are closely studying where the risks are building. In any case, free cash flow generation is shifting from the hyperscalers to memory companies and other hardware suppliers, making it questionable if the companies which spend large amounts of capital on the AI build-out will see a decent return on their investment. Emerging markets are a clear beneficiary.

There are more perspectives on this topic in the outlooks for developed and emerging markets equities from Chris Berkouwer and Wim-Hein Pals respectively. We also interview Mutlu Gundogan from the Robeco Smart Materials strategy about his investment journey. We get an assessment of terrestrial vs. orbital datacenter investment from Michael Studer of the Robeco Smart Energy strategy. In addition, we have trip notes from the space-age Beijing Auto Show, and include a recap of our internal progress in utilizing AI from our recent Equity Day meeting. Finally, we get an assessment of how emerging markets are taking the opportunity to drive the energy transition, a topic which may be the most important of all.

The northern hemisphere summer is sweltering so far. Warm wishes for successful investments in the second half of 2026!