Geopolitics mark start of 2026

The first couple of weeks of 2026 were marked by geopolitics. Firstly, there was the US attack on Venezuela to depose president Maduro. Although tensions rose, markets remained relatively stable. However, Trump’s threatening tone towards its NATO ally Greenland spooked investors until he reconsidered. The quick rebound in financial markets aligned with a pattern that we have seen many times before. Indeed, history teaches us that the impact of geopolitical tensions is often short-lived – so investors should stay focussed on fundamentals and try to ignore the noise.

Economically, the outlook remains positive. Governments are stimulating their economies, while the Fed is expected to lower its policy rate further. Additionally, Trump’s current focus on affordability, aimed at lowering the cost of living for US citizens, can lead to further government stimulus measures. And, finally, the AI spending boom shows no signs of stopping. All this combined leads us to maintain a positive outlook on the world economy, where we expect economic growth in all mayor regions.

Overall, the macro environment is still very accommodative for equities. If anything, the risk of the world economy overheating appears larger than the risk of a recession. Valuations are elevated but the current macro environment, combined with expected strong earnings growth, means we are moderately positive about equities. Regionally, we expect higher economic and earnings growth in the US than in Europe. As a result, we favour US equities over their European counterparts, even though US equities are more expensive. On emerging markets we remain neutral.

On a sector level, we are taking profits by reducing our modestly overweight position in the financial sector to neutral. This sector has benefited from trends such as a steepening yield curve (which benefits financials), deregulation, and a focus on cost efficiency. Although these factors are still in play, Trump has recently targeted US financial institutions with his proposal to cap interest rate levels on credit cards, as his focus leading up to the midterm elections has shifted towards affordability. We believe it is unlikely that this proposal will ultimately be translated into concrete policy. Still, in the short term, it could dampen investors’ enthusiasm about the financial sector.

We are neutral on bonds. Within this overall asset class, we prefer high-quality bonds. We are less enthusiastic about high-return bonds such as high yield, as the risk premium on these bonds – the compensation for taking on the additional risk attached to these bonds – is at historical lows. Meanwhile, we are keeping a close eye on the high budget deficits that governments around the world are running. If the world economy were to overheat, this could lead to a rise in interest rates, including rising yields on bonds issued by relatively highly indebted governments, which would be negative for investors holding these bonds. On the other hand, investment-grade corporate bonds have become relatively attractive, as companies carry far less debt than governments. Therefore, we are within high-quality bonds cautious on government bonds and favour covered bonds (corporate bonds backed by collateral).

Commodities have performed very well recently, amidst rising geopolitical tensions. Specifically, the US attack on Venezuela and Trumps threats towards Greenland have made investors cautious – which has, in turn, been beneficial for commodities, including precious metals such as gold. However, momentum for gold has been so strong that the probability of a technical correction has increased. Therefore, we are using the recent price increase to take some profit on gold, by slightly reducing our position from 5% back to 3% of the portfolio and adding the proceeds to our cash position. With a 3% allocation we remain positive on gold as it provides us with diversification benefits, while providing downside protection against geopolitical unrest and inflation.

Geopolitical tensions rose in the first weeks of the year but appear to have eased. Meanwhile, the world economy is holding up well with positive expectations for both economic and earnings growth. Therefore, we are positive about equities. We are taking some profits on our position in financials, as Trump is trying to improve affordability by targeting the sector. We also use the gold rally to take some profits as the risk of a technical correction has increased. Finally, we remain neutral on bonds.

Richard de Groot 
Chair Global Investment Committee