Equity outlook: A positive set-up

It was an incredible 2025 in financial markets in the truest sense of the word. Despite all the political skirmishes, geopolitical turmoil, and trade tension we saw equities again perform strongly, driven by the AI revolution and the relative performance of markets ex-US. We climbed a 'wall of worry', with fearful narratives abounding at every foothold over the underlying strength of the US and global economy, the impact of tariffs on inflation and supply chains, and the potential longevity of the AI investment cycle. Nevertheless, those investors who kept a long-term mindset and were sanguine about the news headlines were rewarded with solid performance, with emerging markets delivering exceptionally strong returns.

Meanwhile, 2026 is off to a full-throttle start. What can we expect next? A positive thesis is the most compelling. The investment cycle in AI in the US, defense and infrastructure spending in Europe, and the further catch-up of emerging markets, are all themes in their early stages. Energy prices are low, the tariff shock has been somewhat absorbed, and liquidity is still plentiful. Monetary conditions globally are set to get easier, led by the Fed and PBoC. Ahead of the US midterm elections there is little chance of tightening of either monetary or fiscal policy. That's a powerful set-up for more strength in equities, even as the new geopolitical realities create volatility and angst. Moreover, performance dispersion between asset classes, sectors and companies means it's now crucial to fine-tune asset allocation and take an active approach.

In this edition of the Fundamental Equity Quarterly we embrace all these themes with a write-up on AI, a subject which was central in our recent internal Equity Day conference, and reflections from portfolio manager Jack Neele on which less high-profile sectors are benefiting from AI capex. We interview Jie Lu on the prospects for China in 2026 and there’s an article explaining changes to our Robeco European Stars Equities strategy that will broaden the investment universe. We also take a close look at Japan after bond market jitters in Q4, and the SI team give you their expert take on the recent COP 30 in Brazil.

Enjoy reading and best wishes for another great investment year!