This highlights a world where policy has suppressed the economic cycle, valuations diverge from fundamentals, and geopolitical noise persists. For investors, the challenge is to separate the durable from the cyclical, and the noise from the signal.  

The path forward is one of care and absolute discipline: diversify, protect against inflation and policy error, and remain valuation disciplined.  

Below, we outline four key themes shaping the investment landscape for 2026.  

Households and businesses have responded to higher interest rates by deleveraging. Governments have done precisely the opposite.  

In major economies, sovereign debt has surged to levels normally seen only in wartime. The fiscal impulse has not eased post-COVID; it has accelerated   

This mix - private austerity, public expansion - supports near-term growth but raises long-term fragility through:  

• Higher structural deficits  

• Greater refinancing sensitivity  

• Potential bond-market repricing  

The model works… until it doesn’t.  

AI remains the defining structural theme of this decade. Investment in AI infrastructure, chips and cloud continues to support U.S. earnings and GDP.  

Yet the market’s concentration in a small number of mega-cap AI leaders presents valuation risks. The earnings growth implied by current market pricing is “extraordinary” and increasingly difficult to justify.  

Central banks are easing cautiously. The U.S. Federal Reserve has begun cuts; Europe moved earlier as inflation cooled. But no major institution expects a return to the zero-rate world of the 2010s.  

The Australian share market has risen ~40% since 2022 despite a 12% decline in earnings forecasts. This divergence mirrors earlier periods when policy intervention muted the economic cycle and encouraged risk-taking. But unlike the post-GFC period - when markets were too pessimistic - today’s optimism is driven largely by AI-related expectations.  

The structural forces – supply security, de-globalisation, fiscal expansion - imply higher real rates for longer.  

The world heading into 2026 is neither benign nor broken - it is simply changing. Contradictions abound, cycles are muted, and policy remains hyper-active. But for disciplined investors, opportunities are present. With this in mind we have positioned portfolios for 2026 to:  

1. Lock in today’s high-quality fixed-income yields; A rare opportunity to secure portfolio income for years ahead.  

2. Increase exposure to real assets and alternatives; They provide inflation linkage and genuine diversification.  

3. Maintain inflation protection and strong liquidity buffers; Essential in a world of policy uncertainty and fiscal strain.  

4. Be AI valuation mindful - consider the ‘shovels-to-the miners’ and the smart global adopters; Be mindful of AI leader valuations and look to AI adopters and supply-chain beneficiaries (smart industrials, defence, healthcare.)