As always at this time of year, we start collecting ideas for Christmas gifts and setting out our main convictions for the year to come. Part of the exercise consists of finding a title that sums up the views in a few words. Last year, we titled our yearly outlook “No Room for Improvisation”. It was rather spot on in retrospect, considering the near 20% drawdown experienced by global equity markets between February and April 2025 on the back of Trump’s improvisation on trade wars.

In our current edition, we opted for “Tough on a tightrope”, not only because it sounds good (it is the title of a song by Paul McCartney released in 1986), but because it reflects a reality for investors. Three consecutive years of near 20% returns for global equity markets pushed valuations to high levels, involving, in theory, lower expected returns in the future. The fundamental issue with relying on a valuation-based approach is that it would have significantly limited portfolio exposure to Tech years ago, leading to a huge opportunity cost (see for instance The Economist, “Are technology firms madly overvalued?”,  from 23/02/2017).

On the global economic front, there have been few changes in dynamics: the US remains the key engine of growth. Despite the inflation and rate hike shock, and now the trade tariff blow, the US consumer has shown great resiliency. But the moderation of the job market in H2-2025 comes on top of the above and could break the virtuous cycle of job confidence/ consumer spending.

Economic activity in Europe and China remains sluggish as consumers have a higher propensity to save. China’s real estate meltdown remains a drag on consumers. In Europe, population ageing, geopolitical uncertainty, and cultural factors could influence saving patterns. In France, political instability and the deterioration of budget deficits also led to higher saving rates.

Below, we present six key ideas for 2026, although they are not set in stone. Trump’s unpredictability will, in our view, again require great flexibility in portfolio management next year.

#1 US equities remain a cornerstone of global portfolios. We recommend maintaining a diversified and agile exposure to Tech, as AI will create both winners and losers

  • Don’t fight the Fed, don’t fight the Tech trend, but still mind the gap as the AI infrastructure race comes with bottlenecks and potential disappointments.
  • ​​​​​Beyond Tech, we expect further upside on pharma and banks in the US, and a recovery in consumer discretionary.

#2 Overweight European equity sectors such as Healthcare and Utilities

  • Visibility has been restored in the pharma sector. The industry has taken steps to address Trump’s calls for lower drug prices and increased investment in the U.S. The sector offers attractive valuations and secular growth exposure (population ageing, obesity). Its low correlation with Tech makes it an effective diversifier.
  • Utilities have become more dynamic lately with the AI infrastructure theme. As a low beta, high dividend, attractively valued sector, the exposure to the AI ecosystem involves an interesting risk-return profile.

#3 Play contrarian in European Autos and Luxury

  • The Automotive sector in Europe has massively underperformed in the past 18 months. Its valuation has thus become attractive. We expect softer regulatory constraints on the sector, as the EU adapts its Green Deal to the new geopolitical reality, to unlock the value discount.
  • Luxury also underperformed the European equity market in 2025, though there are signs of stabilisation, in particular in China. The Middle East is now the fastest-growing region, fueled by tourism and robust domestic demand. The Americas benefited from repatriated local customers and improved sentiment in H2, while Europe was hit by weaker tourist inflows amid EUR strength. APAC ex-China improved, with South Korea showing recovery signs.

#4 Global diversification: Japan, Emerging Markets, China, Gold

  • While we believe that US equities remain a cornerstone of global portfolios, diversification is key.
  • We maintain an OW position on Japan and EM equities. Valuations are reasonable, Japan responds to new internal dynamics (consumer confidence, fiscal stimulus, potentially the end of the BoJ rate hikes in 26). China is more speculative/ tactical in our view.
  • Gold is also a source of diversification. Its long-term performance is similar to equities, without substantial correlation to equities. The weakening of the dollar as a reserve currency under the Trump administration remains a driver for gold.

#5 Remain long on Italian government bonds (EGBs) for the carry; a status quo on French OATs

  • We expect further declines in borrowing costs in the eurozone in 2026, with the ECB's deposit rate anticipated to reach 1.5% by the end of 2026.
  • Italy offers a higher carry than other eurozone government bonds and more political stability than France. But also involves credit risks, with public debt close to 140% of GDP. Mind the growth slowdown however, that can complexify the budget equilibrium.
  • In France, we expect a status quo in 2026. The spread versus Bund is set to remain in the 75-85 bps range.

#6 European credit: overweight hybrid bonds and bank Tier 2 bonds. Selectivity in HY, AT1s and RT1s

  • We reiterate our Overweight stance on corporate hybrids, which rests on four pillars: 1) a clear premium over the BBB-rated corporate index; 2) a broadly stable credit outlook for most issuers; 3) very low extension risk supported by consistent call and refinancing behaviour; and 4) favourable primary market conditions.
  • The European insurance sector has demonstrated resilience on fundamentals in 2025. Credit quality stays stable, with agencies largely affirming ratings and outlooks. We believe RT1s should outperform the broader high-yield market, although the available bonds remain limited.
  • We stay positive on euro bank Tier 2 bonds, focusing on 3-to-5-year call windows with clear refinancing economics.