Outlook 2026: Core investment implications

While the global economy demonstrated remarkable resilience in 2025, the true impact of US tariffs – one of the year’s dominant stories - remains uncertain. However, the International Monetary Fund has raised its 2025 global growth forecast to 3.2% from the 3.0% it projected in July and has kept its 2026 estimate at 3.1%.¹

From a markets perspective we expect spending on artificial intelligence (AI) will continue to support US GDP and technology sector stocks. Bonds should benefit from continued central bank easing in 2026. A resilient global economy and monetary policy measures should keep fiscal concerns in check while the core scenario is positive for credit markets.

Central investment scenarios

Despite risks, growth remains resilient, powered by AI

The US economy remains resilient. Spending on AI; an equity market-led wealth effect; and a strong credit environment, helped by expectations of lower interest rates, are supporting growth. AI is the primary potential disruptor given its promise of rapid improvements in productivity. The technology has the potential to disrupt legacy business models, optimise value chains, and generate significant advances in fields such as medicine and agriculture. To achieve this, huge investment is taking place in infrastructure and the AI value chain - data centres, cloud computing capabilities and securing increased energy supply. Rising stock prices of key players in the AI race are contributing to a wealth effect underpinning consumer spending, investment, and US economic leadership, despite concerns about international trade and other policies.

Time for Europe to step up

Europe faces trade, geopolitical and competitiveness challenges. The good news is that the region has recognised this - as outlined in 2024’s Draghi Report on European economic competitiveness. The challenges are made more urgent by the changing relationship with the US; the need to increase defence spending; and the desire to invest more in the green transition and technology. Some positive tailwinds are developing – growth has been resilient in recent quarters, and the European Central Bank should maintain low, or possibly even lower, interest rates, while Germany’s fiscal plans have the scope to bolster growth throughout the Eurozone. Fiscal issues, a still fragmented capital market, and domestic politics may conspire to act as a drag on growth, but 2026 should also see the bloc make progress on developing better economic policies to address adverse global developments.

Bond markets – credit in focus

Fixed income returns were healthy in 2025, and bond yield levels suggest that income-based returns will be positive going forward in the absence of any interest rate or credit shock. Our core view is that rates will fall further in 2026, supporting bond markets in general. However, there are risks that could generate periodic bouts of volatility in fixed income. High levels of public borrowing could create issues in some government bond markets; there is a risk that US inflation may stay elevated; and there are concerns that tight credit spreads – differences in bond yields - will limit continued positive excess returns in investment grade and high yield bonds. Convergence of US and Eurozone interest rates could also have implications in the foreign exchange markets.

Sustainable investing: Getting back on track

By AXA IM, Head of Sustainability, Core Products & Clients, Jane Wadia and BNP Paribas Asset Management, Global Head of Sustainability, Jane Ambachtsheer

It has been a turbulent period for environmental, social and governance (ESG) portfolios, which endured net outflows early in 2025. However, the second quarter (Q2) enjoyed a strong rebound, with $4.9bn in net inflows globally, driven by European investors who added $8.6bn after redeeming $7.3bn the previous quarter. Despite some outflows in Q3, total sustainable fund assets climbed to $3.7trn, an increase of around 4%, supported by stock market appreciation.²

European investors remain firmly committed to sustainability, and climate remains their top priority.

One recent survey shows 58% of UK and European asset managers plan to increase impact allocations in the next year, with none intending to reduce them.³

In Asia Pacific, we have seen continued progress on several sustainability priorities - for example, the region is set for a record year for sustainable bond issuance in 2025. In addition, 80% of asset owners in the region expect assets under management in sustainable funds to grow over the next two years.⁴

For us three climate-related investment strategies stood out in 2025, which we expect to remain in focus in 2026.

1. Green bonds

   Green bonds finance projects like renewable energy, green buildings, and low carbon transport, offering similar risk profiles to conventional bonds but with added transparency and impact reporting. The market has grown from €30bn a decade ago to €1.9trn today. It has grown into a global universe, with breadth and depth in terms of sectors and issuers. Although 2025 issuance may be slightly lower than 2024’s record of some €420bn, innovation continues, notably with European green bonds gaining traction. The broader green, social, and sustainability bond market now rivals the euro investment-grade credit sector at €3trn, with green bonds as its cornerstone.⁵ The state of the market should come as little surprise given that today, green bonds are entrenched in the mainstream – and have been for some time – typically offering a comparable yield to conventional bonds.

2. Decarbonisation  

   Asset owners are moving from pledges to action, adopting frameworks like the Net Zero Investment Framework and the Task Force on Climate-related Financial Disclosures (TCFD). Decarbonisation strategies focus on seeking opportunities associated with the transition to a low-carbon economy and reducing exposure to carbon emissions and are gaining traction across equities and fixed income. Climate and Paris-Aligned Benchmark exchange-traded funds are also seeing increased interest.

3. Climate and nature solutions

   Investors are allocating capital to solutions that address climate and biodiversity challenges. These include clean energy, sustainable agriculture, resilient infrastructure and water management. The goal is to invest in financially sound and scalable companies delivering measurable environmental outcomes - such as carbon emissions avoided - or restoring ecosystems. Climate change and biodiversity loss are a systemic issue and addressing them demands solutions that match their considerable scale. These environmental strategies not only help manage physical climate risks but also open new investment opportunities in underserved markets.

Looking ahead

Despite policy shifts in the US, Europe continues to lead in sustainable investing, offering a strong pipeline of opportunities with attractive risk-return profiles - and European governments, corporates, and investors are staying the course. For European investors, sustainability is not a trend—it’s a strategic imperative. And with Asia’s growing role in driving the energy transition, we have two clear regions driving this focus. 

Asset Class Summary Views

Views expressed reflect expectations on asset class returns and risks. Traffic lights indicate expected return over a three-to-six-month period relative to long-term observed trends.

Views are not intended as asset allocation advice.