Financials still have room to re-rate

In 2026 equity markets continue to be highly correlated with the direction of global liquidity indicators. The trajectory of (real) interest rates, credit spreads and global central bank policies will continue to set the tone, especially for financials. Bond yields are sending strong signals worldwide that we are entering a new inflationary regime, but it appears policy rates have hit a peak. The yield curve has steepened since mid-2023 and this trend continues, which is highly supportive for deposit-taking financials. In addition, regulation of financial markets is softening, after 15 years of tightening regulation that began after the Global Financial Crisis. This should bode well for the earnings outlook, return profile and cost of capital of many financials, but change will be slow and unevenly spread.

Consensus is now for continued dollar weakness, and we agree this is the path of least resistance. US dollar weakness is also eating into the total returns of non-dollar investors, and this aligns with our view that non-US assets are relatively more attractive since valuations are cheaper and positioning remains light, although with reduced underweights. Stock selection remains key however, as plenty of strong US companies are trading attractively.

Aging populations are reaching problematic proportions. In the US, there were 16.5 workers supporting each Social Security beneficiary in 1950. Today, fewer than three do, and by 2040 it will be just two.² In our Aging Finance theme, we have seen a shift of the retirement burden from the state and corporation to the individual and this provides a long-term structural growth opportunity for well-positioned financial services companies. From 2023 to 2028 the entirety of asset management revenue growth is set to be driven by alternatives (private markets), which are expected to grow at a 11.5% CAGR and approach almost half of total revenues by 2028 (see Figure 1).

Encouragingly, despite strong performance in 2025 there remain clear pockets of undervaluation, even as certain segments, such as retail brokers and investment banks, have experienced a valuation re-rating. We see a strong pipeline for M&A deals and IPOs which, coupled with a markedly pro-business climate in the US, augurs well for deal-making. On Dealogic data, European banks announced more M&A than in any year since 2009, with an aggregate tally close to that of their US peer group. We also see elevated M&A activity in the asset management industry. This trend stands to benefit global investment banks in the US, but also Europe and Asia. As financials shares have risen and the sustainability of present ROEs appears less in question, we think the market has become more accepting of M&A as a substitute for endless buybacks. In general, we prefer smaller, in-market deals over large complex deals, which tend to disappoint.

Alternative asset managers continue to be well positioned to deliver robust growth in fee-related earnings over the next five years. Combined with an improving exit environment, this momentum is expected to facilitate new AuM gathering, after an underwhelming 2025. Life insurers showed strong performance in 2025 , and the new business growth in Asia looks especially promising. Europe and the US also present strong growth opportunities, driven by rising demand for pre-retirement savings as well as post-retirement annuity income.

The relaxation of the regulatory environment that we are currently witnessing bodes well for many financials This development is led by the US, with a very pro-business government keen to unleash some of the excess capital (from regulated reserves) into the real economy. The EU, however, is contemplating its own version of capital market reforms to protect the level playing field. Increased capital flexibility enables banks to pursue growth strategies, increase dividends and share buybacks, and improve profits. While the exact impact on profitability varies by institution, HOLT analysis suggests that a 1% improvement in Cash Flow Return on Equity (CFROE) – a proxy for economic performance – could translate into an 8% increase in warranted valuation for US banks. Similarly, a 1% reduction in the discount rate applied to European banks – reflecting higher returns and lower perceived risk – could lead to a 17% increase in warranted valuation. For more details read our article on structural tailwinds for financials.³

The Emerging Finance theme focuses on the growth of the global middle class, especially in emerging markets, where financial penetration is still relatively low. After a sluggish period, emerging market financials ended 2025 strongly, with standout results in Central and Eastern Europe, Korea, and Brazil. The global economy has shown remarkable resilience, and many emerging economies are expected to maintain solid growth into 2026. In many ways, emerging economies are on a more sustainable macro track than many developed markets. With inflation now largely under control, most central banks shifted toward monetary easing last year (Brazil and Japan were notable exceptions). Moreover, Brazil and Mexico are expected to lower rates this year. Supported by favorable domestic dynamics, structural growth prospects, and attractive valuations, the outlook for emerging finance through 2026 is positive.

In our Digital Finance theme, key trends such as alternative payment methods, increased capital market activity, and AI adoption, are the most promising opportunities. Digital wallets such as Apple Pay, Venmo, CashApp, and Shop Pay⁴ continue to grow transaction volumes. In the US, digital wallets accounted for 39% of total ecommerce transaction value and 16% of point-of-sale transaction value in 2024. The appeal lies in increased user convenience and reduced fraud risks, driving the shift away from manual card entries, card-on-file, and cash.

Buy-now-pay-later providers like Afterpay, Affirm and Klarna represented 6% of ecommerce payments and just 1% of offline payments in 2024, but are gaining traction. Affirm grew its total platform portfolio 36% year-over-year to USD 16.1 billion at the end of September 2025. As a reference, card behemoth Capital One saw its gross loan book decline by -1% to USD 443.8 billion over the same period. Anecdotally, we have seen pay-by-bank payment options being promoted by merchants in recent months. It is a trend to watch as these volumes do not go over the card networks. We moreover note a shift in policy tone in response to the affordability crises, and the ‘K-shaped’ economy, especially in the US. The shift toward more populist policy interventions creates, in our view, an opportunity for fintechs, especially those offering transparent lending products for consumers and SMB.

One of the most transformative trends we are watching in 2026 is the adoption of AI agents. AI agents are capable of autonomously performing tasks on behalf of a user, and can enhance efficiency, reduce costs, and improve customer experiences by automating complex tasks. In a digital finance world, that means thousands of white-collar jobs at financial institutions are in line to be augmented by AI. Although investors are currently single-mindedly focused on the disruptive effects of GenAI on traditional businesses, we observe an element of careless extrapolation. It reminds us of the Covid era when we saw a ‘world has changed forever’ narrative that was reality-checked within 6-12 months.

We firmly believe that most incumbents will be slow to respond to these platform shifts but that digitally native or ‘tech-first’ companies are much better placed to adjust and benefit from the wave of incoming AI solutions. In that sense, we feel fintech & AI are natural allies⁵, not enemies. In our view, a durable advantage moves toward control over proprietary data, infrastructure, and networks. Long-term winners will sit where proprietary data is continuously generated so that ‘natural-network’ economics apply. We see regulated businesses as better protected and think that platform companies which generate unique behavioral data stand to benefit from GenAI.

In addition, we see blockchain technology making rapid inroads, as we start re-plumbing the existing financial infrastructure. Blockchains function as neutral settlement and execution layers where activity, liquidity, data and applications converge onto shared rails. We are in the early innings of a transition where financial services are moving from on-line to on-chain. This eco-system is a natural ally of GenAI as vast swarms of AI agents can be served in real time at low cost. Interestingly, in this new economy, value accrues not just to applications, but also to the blockchain layer. Having said that, as Enterprise GenAI adoption is still in early innings, we must have an open mind when it comes to picking winners and losers, although the current episode of indiscriminate selling is clearly providing opportunities within Digital Finance.

Footnotes

¹Past performance is no guarantee of future results. The value of your investments may fluctuate.
²How Social Security and Medicare Face a Crisis as America Ages – GovFacts - 2025
³Regulatory change is sparking fresh growth for financials and fintechs – Robeco – October 2025
⁴The companies referenced are for illustrative purposes only in order to demonstrate the investment strategy on the date stated. The companies are not
necessarily held by the strategy nor is future inclusion guaranteed. This is not a buy, sell or hold recommendation, nor should any inference be made on the
future development of these companies.
⁵ AI and fintech: A perfect match – Robeco – June 2025