Mid-Year Outlook 2026

The US remains the fastest‑growing major advanced economy in 2026 (IMF 2.3% vs 1.1% eurozone, 0.8% UK, 0.7% Japan), with structural drivers (resilience, growth plan, IT leadership) intact despite the energy shock.

Policy rates did broadly trough as expected, but the Hormuz/energy shock has pushed expectations back up and even raised the risk of renewed tightening; EM high real‑rate opportunities were initially attractive but have become more challenging after the global repricing of rates.

Developed‑market sovereigns, especially the UK, have indeed come under pressure: Gilts have negative YTD returns, yields have spiked to multi‑decade highs and fiscal/political concerns are front and centre, validating the warning on vulnerable sovereigns.

2026 has been dominated by geopolitics (US‑Iran conflict, Hormuz closure, UAE leaving OPEC), a more pragmatic but strategic US‑China stance, deeper US state involvement in strategic sectors, and rising support for more extreme parties in Europe.

Trump’s agenda is clearly market‑relevant, but with a twist: DOGE has largely stalled (savings barely moved from USD 214bn to 215bn), while deregulation and a pro‑innovation FDA stance on drug development are the real ongoing drivers for credit creation and healthcare innovation.

AI has played out as a major secular growth engine: agentic AI is scaling in enterprises, hyperscaler capex has been revised sharply higher, semiconductors face capacity bottlenecks, and a strong IPO/funding pipeline (OpenAI, Anthropic, SpaceXAI) is emerging.

All three pillars are visible: defence spending is rising rapidly, the energy shock is accelerating the green transition under AccelerateEU, and Europe/Switzerland are leaning into innovation, with Switzerland a clear high‑innovation outlier.

EMs have outperformed strongly (MSCI EM up ~25% YTD in local terms, ~15pp over DMs), supported by stronger growth, currency appreciation and AI‑linked markets (Taiwan, Korea), even as the Hormuz shock creates a more nuanced commodity backdrop.

The opportunity set has evolved as expected: mid‑market specialist buyouts and secondaries are outperforming large buyouts, liquidity‑driven secondary deal flow is strong, and private credit/ infrastructure remain key diversifiers in a higher‑for‑longer, more volatile environment.

Activity has normalised with a clear quality bias: fewer IPOs but higher proceeds (SpaceX as the flagship deal), and fewer M&A transactions but the highest Q1 deal value since 2021, consistent with a selective but active deal environment.