Pictet Asset Management share its insights on the macro-economic outlook and asset allocation on the next year.

Pictet Asset Management thinks that the global economy will be in a sweet spot over the coming year, and that is likely to be reflected in the performance of equities, which is delivering returns of 5 per cent in 2026.

The Swiss firm expects world gross domestic product will grow by 2.6 per cent, roughly in line with its long-term trend rate, which will limit inflationary pressures.

“Investors have turned more optimistic about growth and less pessimistic about inflation,” Pictet said in a statement. At the same time, 85 per cent of central banks are easing policy against a backdrop in which the private sector is increasingly providing credit. The upshot is that solid growth and liquidity infusions makes for a potent combination for riskier asset classes.  

A number of wealth managers have come out recently in favour of emerging markets this year, for instance Ninety One, Aberdeen Investments, Paris-based Amundi, Carmignac and Indosuez, as well as GIB Asset Management and Franklin Templeton. See more here.

For all the generally positive outlook, Pictet made a couple of caveats. First, while interest rates will fall further, the pace of monetary easing will slow – which means investors should expect less of a liquidity fillip in the coming year than they had in 2025. Second, the US economy will lag many of its peers. Pictet expects growth to slightly undershoot potential while inflation remains high for the first few months of next year, before easing in the second half. Its economists forecast US GDP growth to dip to 1.5 per cent in 2026 from 1.8 per cent in 2025, while they see inflation rising to 3.3 per cent from 2.9 per cent. Given the US’s importance in the global markets, this could act as a brake on equity markets.

Asset allocation
Against this backdrop, Pictet expects global equities to deliver around 5 per cent in 2026, with emerging markets and European mid-caps among the standout opportunities, while government bond yields drift modestly higher and the US dollar resumes its decline.

World GDP is forecast to grow at roughly 2.6 per cent, with slower US growth offset by recoveries in Europe and Japan. Some 85 per cent of central banks are easing policy, supporting liquidity even as the pace of cuts slows.

Pictet highlighted that global stocks should grind higher. Emerging markets and domestically focused European mid-caps, and quality companies are favoured, while pockets of vulnerability in richly valued US growth names outside the artificial intelligence (AI) “core” are also identified.

Pictet emphasised that emerging Asia is at the forefront of the tech revolution, while in European markets, it sees upside in domestically oriented stocks, especially mid-caps. European equities remain cheap according to its models. Adjusting for sector composition differences, Europe continues to trade on a 25 per cent discount to the US.

On fixed income, developed markets are muted while emerging markets are more compelling, Pictet continued. With inflation likely to remain above central bank targets, yields on US, UK and eurozone government bonds could rise, but only moderately. By contrast, emerging market bonds offer attractive real yields and scope for rate cuts and currency appreciation, particularly in Brazil, South Africa and select frontier markets.

On currencies and gold, the firm believes that the US dollar is expected to fall by around 5 per cent in 2026 as yield differentials narrow, to the benefit of the euro and yen. Gold remains a safe haven, though after a stellar 2025, return expectations are more measured, the firm added. In other developments, Pictet believes the AI investment cycle still has further to run.

Another positive is that the AI capital spending boom has so far been funded mainly by operating cashflow rather than via equity or debt financing – although the latter is now on the rise.

But AI won’t be the only game town next year, Pictet said. Having suffered a period of protracted underperformance, quality stocks – those with a track record of steady earnings, high profitability and low leverage – are likely to resume their role of helping to protect portfolios from downside risks during phases of market volatility. Pharmaceutical companies look particularly promising as most of the bad news regarding drug pricing has already been discounted and both industry (increased M&A) and macro (moderating growth) factors are in play to unlock the significant value in this space.

Among other sectors, Pictet likes technology, financials and industrials, all three of which are on track to deliver strong earnings growth. In addition to these pockets of strength, the UK market offers inexpensive protection against stagflation risks and an attractive dividend yield.