Invesco’s 2026 global outlook

'Resilience' and 'rebalance' are the watchwords

2025 was a year marked by uncertainty, yet economies displayed a lot of resilience and markets delivered strong returns.¹ As we look ahead to 2026, we believe the conditions are in place for global stocks to rise further. Our “2026 Annual Investment Outlook: Resilience and Rebalancing” reflects two key themes:

Resilience: Businesses have demonstrated a strong ability to absorb economic shocks. We expect this resilience to be further bolstered by interest rate cuts in the United States and fiscal support, such as government spending, across Europe, Japan, and China. We believe these measures should help lift the global economy out of its slowdown.

Rebalancing: US equity markets, particularly the AI-driven tech sector, are seen as expensive, but we see compelling opportunities elsewhere. We believe stocks are more attractively priced in non-U.S. markets, smaller-capitalization stocks, and cyclical sectors within the U.S. (ones that tend to do well when the economy grows).²

We enter 2026 with optimism, confident in the durability of businesses, encouraged by the direction of central banks and fiscal support, and mindful of the need for diversification as the market evolves.

Key economic and investment insights for 2026

Diversification: Managing exposure to AI-driven companies

Investors are questioning whether the artificial intelligence investment boom is becoming overdone, and whether we are in a bubble. At this stage, we think the artificial intelligence (AI) investment theme plays out further and think some of the parallels being drawn with previous bubbles don’t fully hold up. However, we favor rebalancing portfolios to navigate growing risks.

We believe there are AI opportunities that are more attractively priced, Chinese technology stocks, for example. The AI theme can play out along other angles. For example, companies that adopt AI may see cost efficiencies or new product offerings. Finally, strategies that broaden exposure beyond traditional market-cap-weighted approaches may be a prudent way to reduce the risk of overexposure to a few of the largest AI-driven stocks.

Europe: Policy is turning positive for the region

Eurozone growth has been disappointing for several years. However, we think that is changing now with Germany embarking on a period of higher military and infrastructure spending. We expect this to be supported across the region by higher military spending in many countries, continued growth in purchasing power, and recent interest rate cuts.

Pessimism toward the U.K. is too high in our view. We believe the Bank of England now has more scope to cut rates, and retail sales appear to be on an uptrend. Economic growth could surprise positively in 2026 and support U.K. markets.

Japan: Fiscal support, inflation may lift nominal growth

Japan is experiencing a structural return of inflation that has helped ignite a virtuous cycle where consumption is climbing alongside nominal wages. The labor market remains tight, and capital investment has been consistently stronger than most economies.

We expect Japanese growth will continue to improve and move above trend in 2026, helped by meaningful fiscal stimulus. We expect the Bank of Japan to hike rates slowly, keeping rates well in accommodative territory, which should help support growth and investment.

India: Outlook improves amid geopolitical challenges

India should see ongoing reforms and potential in 2026 alongside an improvement in U.S.-India relations. That can help lift Indian stocks higher. We expect India to remain the world’s fastest-growing large economy, with growth modestly accelerating on Reserve Bank of India rate cuts. Domestic economic reforms remain crucial for future growth and resilience, in our view, and we expect gradual progress given political constraints.

Emerging markets: Signs of continued strength

Emerging market (EM) equities posted outsized returns in 2025, ³ and we believe there are continued reasons for that outperformance to potentially continue in 2026.

• Chief among them is the anticipated weakening of the U.S. dollar, which we expect would potentially benefit EM stocks.
• Rate cuts in the U.S. also create room for EM central banks to continue lowering rates, supporting domestic demand and equity markets, in our opinion.
• Many EM economies are expected to outpace developed markets in gross domestic product growth, driven by favorable demographics, rising consumption, and investment flows.
• Moreover, EMs are poised to potentially benefit from the global buildout of artificial intelligence infrastructure. China is investing heavily in AI and related technologies, which could serve as a powerful engine for equity market performance.

Private credit: Diversification potential

We believe private credit remains an attractive option for those seeking diverse sources of income beyond traditional credit. Base rates remain above pre-pandemic levels,⁴ and an improved outlook for both the underlying real estate and cash flows of middle-market borrowers should allow for private credit to perform well into 2026, in our view.

In addition, a more benign risk environment, better growth, and stable inflation, coupled with easier U.S. monetary policy, are conditions that we believe should support private credit.

Brian Levitt is Chief Global Market Strategist and Head of Strategy & Insights at Invesco.

Benjamin Jones is Global Head of Research, Strategy & Insights at Invesco

Notes

1. Sources: International Monetary Fund (IMF) and Bloomberg L.P., Nov. 12, 2025. Global economic growth is projected to rise 3.2% in 2025 based on IMF estimates. The MSCI All-Cap World Index returned 21.98% year-to-date on a total return basis in US dollars.
2. Source: Bloomberg L.P., Nov. 12, 2025. Based on the forward 12-month price-to-earnings ratio of the Bloomberg Magnificent 7 Total Return Index (33.2x), MSCI All-cap World ex. US Index (15.2x), S&P 400 Midcap Index (15.7x), and the S&P 500 Value Index (18.5x) compared to the price-to-earnings ratio of the S&P 500 Index (22.7x).
3. Source: Bloomberg L.P., Nov. 12, 2025. The MSCI Emerging Market Index returned 33.72% year-to-date on a total return basis in US dollars.
4. Source: Bloomberg as of 17 Nov. 2025, Fed funds rate is 4.0% and was 1.75% pre-pandemic, the UK base rate is 4.0% and was 0.75% pre-pandemic, the ECB’s deposit facility is 2.0% and was -0.5% pre-pandemic. The World Health Organization officially declared a pandemic on 11 Mar. 2020.

Disclaimer

Contents copyright © 2025 by Invesco Canada. Reprinted with permission.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

The opinions referenced above are those of the author as of December 1, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations. Diversification does not guarantee a profit or eliminate the risk of loss. All investing involves risk, including the risk of loss.

Diversification does not guarantee a profit or eliminate the risk of loss.

All figures are in U.S. dollars.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

All investing involves risk, including the risk of loss.

Past performance is not a guarantee of future results.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the simplified prospectus before investing. Copies are available from your advisor or from Invesco Canada Ltd.

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