Macro Matters September-October 2026

THE GLOBAL OUTLOOK: Are We Entering a New Economic Regime?

There is a growing disconnect between what markets are discussing and what is changing beneath the surface of the global economy. Investors continue to focus on inflation releases, employment reports, quarterly earnings, and central bank decisions. These indicators remain important, but they are increasingly symptoms of a larger transformation rather than the transformation itself. For much of the past fifteen years, financial markets operated within a remarkably supportive environment. Inflation remained subdued, interest rates trended lower, government bond yields steadily declined, geopolitical risks were relatively contained, and globalisation continued to expand. Capital was abundant, borrowing costs were low, and businesses optimised supply chains for efficiency rather than resilience.

That environment appears to be fading.

The world is now entering a period where multiple structural forces are converging at the same time. Geopolitical fragmentation is increasing. Defence spending is rising across much of the developed world. Governments are investing heavily in energy security, industrial policy, infrastructure and strategic industries. The artificial intelligence revolution is driving one of the largest technology investment cycles in modern history. Climate adaptation is requiring significant investment in energy, water and transport networks. Food security concerns are returning to the policy agenda. At the same time, ageing populations continue to place increasing demands on public finances.

The common denominator is simple: All these developments require capital.

Many investors still assume the global economy will eventually return to the low-rate environment that dominated the period following the Global Financial Crisis. Yet developments during August and September suggest a different possibility is emerging. The debate is no longer about how quickly central banks can cut interest rates. The more important question is whether equilibrium interest rates are structurally higher than investors have become accustomed to.

This issue extends far beyond monetary policy. Governments across the United States, Europe, Japan, Australia and much of Asia are increasing borrowing requirements to fund defence, infrastructure, strategic investment and rising interest costs. At the same time, the world’s largest technology companies are committing hundreds of billions of dollars to artificial intelligence infrastructure, including data centres, electricity generation, power transmission networks and semiconductors. Increasingly, governments and corporations are competing for the same pool of global savings.

Another development receiving insufficient attention is Japan’s changing role in global financial markets. For decades, ultra-low Japanese interest rates encouraged investors to deploy capital overseas in search of higher returns. As Japanese bond yields continue to normalise, capital that once supported global asset markets is beginning to find attractive opportunities at home. The implications extend well beyond Japan itself and have the potential to influence bond yields, liquidity conditions and asset valuations across the world.

Energy security remains equally important. Oil prices have once again moved above US$100 per barrel as geopolitical tensions across the Middle East have intensified. At the same time, the Russia-Ukraine conflict continues to reshape global energy markets while Europe remains heavily dependent on LNG imports. These pressures arrive just as the Northern Hemisphere moves into the winter heating season, increasing demand for energy at a time when supply chains and shipping routes remain vulnerable.

Food security may be the next challenge. Weather-related disruptions associated with El Niño, rising fertiliser costs, water constraints and geopolitical tensions are creating renewed uncertainty around agricultural production. Historically, sustained increases in food prices have had economic and political consequences far beyond the agricultural sector itself.

What many observers are missing is that these issues are not isolated events.

Energy security, food security, defence spending, artificial intelligence, climate adaptation, debt sustainability and supply-chain resilience are all expressions of the same structural trend: the world is becoming less focused on efficiency and more focused on security and resilience.

That transition is unlikely to be deflationary.

The next six months may therefore prove significant not because of a single geopolitical event or economic release, but because they may confirm that the assumptions which defined the investment environment for most of the past two decades are being fundamentally rewritten. The question facing investors is no longer whether markets are entering another economic cycle. The question is whether we are entering a different economic regime altogether.

Higher Bond Yields Are Reshaping Investment Markets

One of the most important developments for investors in 2026 has been the return of higher bond yields. Unlike previous episodes, this is not confined to a single country. Bond yields have been rising across the United States, Europe, the United Kingdom and Japan, suggesting investors are reassessing the global cost of capital rather than reacting to isolated domestic issues.

Higher yields are changing how markets value risk. For much of the post-Global Financial Crisis era, ultra-low interest rates pushed investors towards equities, property and alternative assets in search of returns. Today, government bonds and investment-grade credit once again offer meaningful income, creating genuine competition for investor capital.

The consequences extend well beyond fixed income. Higher bond yields increase the discount rate applied to future earnings, reducing the value investors are willing to place on long-duration assets. This creates headwinds for highly valued growth companies, speculative investments, and sectors dependent on future earnings expectations rather than current cash flows.

Property and infrastructure markets are also adjusting. Assets that benefited from decades of falling interest rates now face a world where investors demand higher returns to compensate for rising bond yields. As a result, rental growth, cash-flow generation and asset quality are becoming increasingly important drivers of performance.

Governments are also feeling the effects. As existing debt matures and is refinanced at higher rates, interest costs consume a growing share of public budgets. This leaves less flexibility for infrastructure, social spending and future investment while increasing sensitivity to further rises in borrowing costs. In many economies, bond markets are becoming an increasingly important constraint on fiscal policy. The corporate sector faces similar challenges. Companies that expanded during the era of cheap debt are confronting significantly higher refinancing costs. Rising interest expenses place pressure on profits, free cash flow and balance- sheet strength, reinforcing the importance of quality and financial discipline.

One of the most overlooked themes is the growing competition for global savings. Governments require funding for defence, infrastructure and strategic investment, while corporations continue to finance artificial intelligence, technology and energy projects. As demand for capital increases, interest rates may remain higher than markets became accustomed to during the previous decade.

Credit spreads also warrant close attention. While government bond yields have risen substantially, investors are not always receiving significantly more compensation for taking lower-quality credit risk. In this environment, stretching for yield may offer limited reward relative to the additional risk being assumed.

For investors, quality remains the preferred approach. Government bonds, investment-grade credit and carefully selected floating- rate securities continue to offer attractive income while helping manage portfolio risk. We favour maintaining a bias toward higher- quality issuers and selectively extending duration where yields provide adequate compensation.

The key message is that higher bond yields are no longer simply a bond-market story. They influence equity valuations, property markets, government finances, corporate profitability, and portfolio construction. In a world where capital once again has a meaningful cost, the bond market is becoming one of the most important drivers

of investment outcomes across every major asset class.

A-REITs: Income Remains Attractive, but Bond Yields Are the Key Driver

The Australian A-REIT sector is in a stronger position than it was twelve months ago, supported by improving property fundamentals, resilient rental income and generally stronger balance sheets. However, while operating conditions have improved, valuation growth remains constrained by elevated bond yields and higher financing costs.

The sector is increasingly being shaped by long-term bond yields rather than short-term movements in the cash rate. Property remains a yield-sensitive asset class, and as government bond yields remain elevated, investors continue to demand higher returns from listed property vehicles. This has limited valuation expansion despite improving conditions across many property sectors.

As a result, A-REIT returns are likely to be driven more by income growth and asset quality than by broad market re-ratings. The era where falling interest rates provided a consistent tailwind for property valuations appears to have passed, at least for now. Investors are increasingly focused on rental growth, occupancy levels, lease quality and capital management rather than simply lower discount rates. Balance-sheet strength remains a key differentiator. Many of the larger A-REITs have spent recent years reducing gearing, extending debt maturities and increasing fixed-rate debt exposure. These measures have helped cushion the impact of higher interest costs and place the sector in a more resilient position should bond yields remain elevated.

Property fundamentals continue to vary significantly by sector.

Industrial and logistics assets remain the standout performers. Structural demand from e-commerce, supply-chain resilience initiatives, warehousing and data-centre development continues to support occupancy and rental growth. Demand for well-located industrial land remains particularly strong as businesses place greater emphasis on logistics efficiency and digital infrastructure.

Retail property has also performed better than many expected. Grocery-anchored shopping centres and neighbourhood retail assets continue to benefit from defensive cash flows, limited new supply and resilient tenant demand. Rental growth has improved, and occupancy levels remain healthy, supporting income-focused investors.

The office sector remains more mixed. Sydney and Brisbane continue to benefit from stronger tenant demand, improving occupancy and more favourable supply conditions. Melbourne remains the most challenging office market, with higher vacancy rates and softer leasing activity continuing to weigh on performance. Encouragingly, recent moves by governments and major employers to increase office attendance may provide some support for CBD demand over time, particularly in Victoria where work-from-home arrangements have come under increasing scrutiny. Across all office markets, premium-grade assets continue to outperform secondary assets as occupiers prioritise quality, location and workplace amenities.

For investors, selectivity remains critical. We continue to favour A-REITs with strong balance sheets, high-quality assets, defensive income streams and experienced management teams. Industrial, logistics and selected retail exposures remain preferred, while lower-quality office assets and highly leveraged property vehicles warrant greater caution.

Overall, A-REITs appear considerably more stable than they were a year ago. However, until bond yields begin to move lower, returns are likely to be driven primarily by income growth, disciplined capital management and asset quality rather than significant valuation expansion. In the current environment, successful property investing is becoming less about interest-rate speculation and more about owning high-quality assets capable of generating reliable and growing cash flows.

Australian Equities: The New Drivers of ASX Returns:

The economic backdrop discussed earlier has important implications for investors. Growth is slowing, inflation remains stubbornly above the RBA’s target range, and interest rates are likely to stay higher for longer than many expected. That doesn’t mean the outlook for Australian shares is negative, but it does mean the market is becoming far more selective.

In recent years, falling interest rates and abundant liquidity helped lift share prices across the board. Today, the environment is different. With borrowing costs higher and inflation proving difficult to fully contain, investors are paying closer attention to the quality of a company’s earnings, its cash flow and its ability to protect profit margins when conditions become more challenging.

At the same time, the Australian economy is undergoing an important transition. Household spending is slowing as higher mortgage repayments and cost-of-living pressures weigh on consumers. However, a new source of growth is emerging through investment in data centres, artificial intelligence infrastructure, renewable energy, electricity networks, housing and defence projects. These areas are helping to support economic activity even as consumers become more cautious.

This shift is creating a new group of market leaders.

Resources remain one of the most attractive areas of the market. Gold continues to benefit from geopolitical uncertainty, government debt concerns and strong demand from central banks. Copper and uranium are also attracting attention as the world invests in electricity networks, energy security and the infrastructure needed to support artificial intelligence. Rather than chasing speculative opportunities, investors are likely to be rewarded by focusing on established producers with strong balance sheets and quality assets.

Energy also remains well placed. While oil and gas prices can be volatile, many energy companies continue to generate strong cash flows and pay attractive dividends. In a world where inflation remains a concern, the sector provides a useful degree of protection that many other industries cannot offer.

Healthcare is another area becoming increasingly attractive. Demand for healthcare services tends to remain steady regardless of economic conditions, and many Australian healthcare companies earn a large proportion of their revenue overseas. After a difficult few years for the sector, valuations have become more reasonable, and the long-term growth outlook remains intact.

One of the most interesting themes emerging is the rapid growth of digital and physical infrastructure. The expansion of artificial intelligence is driving demand for data centres, electricity generation, transmission networks and engineering services. The biggest winners may not necessarily be technology companies themselves, but the businesses supplying the power, property, materials and infrastructure needed to support this investment boom.

Financials present a more mixed picture. Banks continue to offer reliable dividend income, but slower credit growth, softer housing markets and weaker consumer activity may limit opportunities for strong earnings growth. Insurers appear better positioned, benefiting from higher investment returns and continued growth in premiums.

Consumer-facing companies face the greatest challenges. Households are becoming more cautious, and spending growth is slowing. Businesses with strong brands and pricing power should continue to perform reasonably well, but the broader consumer sector is likely to face more headwinds than tailwinds over the next year.

Overall, the Australian share market outlook remains constructive, but returns are likely to become more dependent on selecting the right sectors and the right companies. The strongest opportunities appear to be in quality resources, energy, healthcare, infrastructure and businesses benefiting from Australia’s growing investment pipeline. In short, this is becoming a market where resilience, cash flow and structural growth matter far more than simply hoping for lower interest rates.

The U.S. Economy: The Mid-Term Elections: The Next Market Variable

The U.S. economy continues to demonstrate remarkable resilience despite higher interest rates, elevated energy prices and growing concerns about inflation. Economic growth slowed during the second quarter, with GDP expanding at an annualised pace of 1.5%, down from 2.1% in the first quarter. However, consumer spending and unprecedented investment in artificial intelligence infrastructure continue to support economic activity. The labour market remains a key source of strength. Recent employment data surprised to the upside, with job creation remaining healthy and unemployment holding near historically low levels. While hiring has moderated compared with the post-pandemic recovery period, the labour market continues to provide an important buffer against a broader economic slowdown.

The biggest challenge facing policymakers remains inflation. Earlier hopes that inflation would steadily return to the Federal Reserve’s 2% target have so far proven optimistic. Higher energy prices, ongoing supply-side pressures and persistent services inflation have kept price growth elevated, limiting the Federal Reserve’s ability to ease policy. Markets are now debating whether additional interest rate increases may be required over the coming months. Perhaps the most surprising feature of the current cycle has been the strength of financial markets. Despite rising bond yields and a sharp reassessment of interest rate expectations, U.S. equities remain near record highs. The explanation has been earnings. Corporate profits, particularly among the largest technology companies, continue to outperform expectations, offsetting the valuation pressure created by higher interest rates.

Artificial intelligence remains the key driver. Spending on data centres, semiconductors, cloud infrastructure and computing capacity continues to expand at an extraordinary pace. This investment boom is supporting productivity growth, capital spending and corporate earnings, helping to cushion a broader economy that is otherwise showing signs of moderation.

However, investors should not ignore the growing risks beneath the surface.

Rising energy costs remain one of the most significant headwinds. Geopolitical tensions have pushed oil and diesel prices significantly higher, increasing transportation, logistics and manufacturing costs throughout the economy. If elevated energy prices persist, they risk slowing consumer spending while simultaneously adding to inflation pressures, creating a more difficult environment for both businesses and policymakers.

Another emerging concern is fiscal policy. Government spending and large budget deficits have been an important contributor to economic growth and corporate profits over recent years. As political attention increasingly turns toward budget sustainability and fiscal management, there is a growing risk that government support becomes a less powerful driver of growth through 2027.

At the same time, investors are becoming more focused on the economics of the AI investment boom. Technology companies continue to invest hundreds of billions of dollars into data centres and computing infrastructure, but that spending is beginning to place pressure on free cash flow. The next phase of the AI story will be determined not by how much companies invest, but by how successfully they convert that investment into sustainable earnings growth and shareholder returns. Overall, the U.S. economy remains on solid footing, supported by healthy household balance sheets, resilient employment and strong corporate profitability. However, the combination of sticky inflation, higher energy costs, rising government debt and elevated interest rates suggests the path forward may become more challenging.

While recession risks remain low, investors should expect a more volatile environment where earnings growth, cash flow generation and productivity gains matter far more than they have during much of the post-pandemic recovery.

Europe: Resilient Growth Faces an Energy-Driven Inflation Shock

Europe has proven more resilient than many expected in 2026. Earlier fears of recession have faded; labour markets remain healthy and economic growth forecasts have been revised modestly higher. The Eurozone economy is now expected to expand by around 0.9% in 2026, with growth strengthening further through 2027. Unemployment remains near record lows, and business activity, particularly across the services sector, has continued to support economic momentum.

The euro area labour market remains resilient, supported by stronger economic activity. Employment is expected to grow around 0.5% annually, productivity to recover steadily, and unemployment to decline to 5.9% by 2028.

However, the recovery is facing a new challenge.

The sharp rise in oil and natural gas prices following escalating Middle East tensions has reignited inflationary pressures across the region. Headline inflation has moved higher, driven largely by energy costs, forcing policymakers to confront the risk that temporary price shocks become embedded in wages and services inflation.

The ECB’s recent decision to raise interest rates reflects these concerns. Policymakers remain worried that an energy-driven inflation shock could become more persistent if inflation expectations begin drifting higher. As a result, interest rates are now moving firmly into restrictive territory despite growth remaining relatively modest. Importantly, the European recovery is not occurring evenly across the continent. Southern European economies, including Spain, Portugal and Greece, continue to outperform, supported by strong tourism activity, renewable energy investment and resilient domestic demand. Germany remains the region’s weak link. Its manufacturing sector continues to struggle with structural competitiveness challenges, elevated energy costs and weak industrial demand.

For investors, Europe remains a selective opportunity rather than a broad market call. Banks continue to benefit from higher interest rates, while defence companies remain supported by rising military spending across the continent. Infrastructure, utilities and industrial companies linked to energy security and grid modernisation also appear well positioned.

The greatest risks remain concentrated in energy-intensive manufacturing, transportation and consumer discretionary sectors. A severe winter combined with elevated gas prices could quickly pressure profit margins and household spending power. Europe’s story is no longer one of imminent recession. Instead, it is a story of recovery being tested by a renewed inflation shock.

United Kingdom: Growth Remains Elusive

While Europe is showing signs of improvement, the United Kingdom continues to struggle to generate meaningful economic momentum. Growth forecasts have been upgraded slightly but remain subdued, with the economy expected to expand by around 1.0% this year. Consumer spending remains restrained; business investment is soft and labour-market conditions are beginning to weaken. Vacancy growth has slowed significantly, hiring intentions remain cautious, and unemployment has drifted higher.

The UK remains particularly vulnerable to rising energy prices. Higher oil and gas prices are feeding directly into household budgets and business costs just as the country enters the winter heating season. Unlike Europe, where growth is beginning to improve, Britain continues to face a difficult combination of weak productivity, elevated borrowing costs and fragile business confidence.

Inflation is becoming a growing concern once again. Energy costs, transportation expenses and imported inflation are exerting upward pressure on prices. This has left the Bank of England in a difficult position. While growth remains weak, inflation is proving stubborn enough to prevent meaningful monetary easing.

Rising government bond yields have become increasingly important. Investors remain focused on the sustainability of public finances, future spending commitments and the government’s broader fiscal strategy. In many respects, financial conditions are now being influenced as much by gilt markets as by official interest-rate decisions.

For investors, the UK remains primarily a valuation opportunity. Many UK-listed companies continue to trade at significant discounts to international peers despite generating most of their earnings overseas.

The most attractive opportunities remain concentrated in global healthcare companies, multinational consumer businesses, energy producers and financial institutions. By contrast, domestic retailers, housing-related businesses and highly leveraged firms remain vulnerable to a prolonged period of slow growth and elevated interest rates.

The UK has avoided recession, but meaningful economic acceleration remains difficult to identify. The challenge for policymakers will be supporting growth without undermining fiscal credibility or reigniting inflation.

Japan: The Global Consequences of Rising Japanese Bond Yields

Japan is emerging as one of the most important macroeconomic stories in global markets. After decades of deflation, stagnant wages and ultra-low interest rates, the economy is undergoing a significant transformation. Wage growth is running at its strongest pace in decades; inflation remains above historical norms and corporate profitability continues to improve.

Importantly, growth is no longer being driven solely by exports. Japan is benefiting from substantial investment in semiconductors, automation, robotics and artificial intelligence infrastructure. Government incentives and private-sector capital expenditure are supporting domestic manufacturing, while global demand for Japanese technology, industrial equipment and advanced machinery remains strong. Corporate governance reforms continue to improve capital allocation, with rising dividends, share buybacks and stronger returns on equity helping attract both domestic and international investors.

However, the most significant development is occurring in the bond market.

Following decades of ultra-low interest rates, Japanese government bond yields have risen sharply as the Bank of Japan continues to normalise monetary policy. Markets increasingly expect further rate increases as policymakers attempt to contain inflation, support the yen and move financial conditions closer to historical norms.

This matters far beyond Japan.

For decades, Japanese pension funds, insurers and banks invested enormous amounts of capital overseas because domestic yields were negligible. As Japanese bond yields become more attractive, some of that capital may begin returning home. If this trend accelerates, it could place upward pressure on borrowing costs globally as demand for U.S., European and Australian government bonds gradually weaken. The potential repatriation of Japanese capital may become one of the most important drivers of global bond markets over the next several years.

The outlook for the yen is also becoming increasingly constructive. After years of weakness driven by ultra-loose monetary policy and large interest-rate differentials, the currency appears positioned for gradual appreciation. As Japanese interest rates rise and global tightening cycles mature, narrowing yield differentials should provide support for the yen. A stronger currency would help reduce imported inflation and lower energy costs, although it could partially erode the competitiveness of some exporters.

Higher interest rates are creating clear winners within the equity market. Banks and insurance companies are benefiting from improved lending margins and stronger investment returns after years of operating in a near-zero-rate environment. Industrial companies exposed to automation, semiconductors, defence spending and AI-related infrastructure also remain well positioned.

Despite strong recent performance, Japanese equities continue to offer attractive value relative to many developed markets. Valuations remain below U.S. levels, earnings growth is improving, and corporate reforms continue to support shareholder returns. Unlike previous rallies driven primarily by monetary stimulus, today’s market is increasingly supported by stronger fundamentals.

The key risk to this constructive outlook lies in Japan’s public finances. Japan continues to carry one of the highest government debt burdens in the developed world. While rising inflation and stronger economic growth make higher interest rates easier to absorb, they also increase the government’s debt-servicing costs. The success of Japan’s economic transformation therefore depends on growth, productivity and corporate earnings continuing to improve alongside rising bond yields.

If economic growth remains resilient, Japan can successfully transition to a higher-rate environment. However, if growth slows while bond yields continue to rise, investors may begin to question the sustainability of higher debt-servicing costs and the broader economic outlook. In that scenario, the Bank of Japan could face a difficult balancing act between controlling inflation, supporting growth and maintaining financial stability.

For now, the balance of risks remains favourable. Japan is no longer simply a recovery story. It is becoming a structural growth story driven by technology investment, corporate reform, rising wages and monetary normalisation. However, maintaining that positive outlook will ultimately depend on whether economic growth can keep pace with the rising cost of capital in the years ahead.

China: A Two-Speed Economy

China’s economy continues to expand, but growth remains concentrated in a relatively small number of sectors. Manufacturing, technology and exports are providing the bulk of economic momentum, while consumer spending, private investment and the property market continue to face significant challenges.

The latest data highlight an increasingly two-speed economy. On one side, China’s industrial sector remains resilient. Strong global demand for technology products, together with ongoing investment in artificial intelligence, semiconductors, electric vehicles and advanced manufacturing, continues to support production and exports. Industrial output accelerated in August, led by high-tech manufacturing, equipment production and other export-oriented industries. Growth in areas such as integrated circuits, industrial robots, batteries and new energy vehicles demonstrates the continued strength of China’s industrial upgrading strategy.

Exports also remain an important pillar of growth. Demand for Chinese technology products has remained firm despite geopolitical tensions and evolving global supply chains. As a result, manufacturing and export-focused industries continue to outperform most other parts of the economy.

In contrast, domestic demand remains subdued. Consumer confidence has yet to recover meaningfully, with households continuing to favour saving over discretionary spending. Retail sales growth slowed further in August, highlighting the ongoing weakness in consumption. Spending on vehicles, furniture and a range of discretionary goods remained soft, suggesting that household demand is still not providing a meaningful contribution to economic growth.

Investment trends tell a similar story. While capital continues to flow into strategic sectors linked to technology, automation and industrial development, broader investment activity remains weak. Private sector investment continues to decline, reflecting cautious business sentiment and uncertain demand conditions. Outside of high-tech industries, investment across infrastructure, manufacturing and real estate remains under pressure.

The property sector remains the largest drag on the economy. Housing prices continue to edge lower across most cities, while property investment, housing starts and developer funding all remain in contraction. Although some of China’s largest cities have shown signs of relative stability, the broader market continues to struggle with excess supply, weak buyer confidence and reduced financing activity. The ongoing downturn is extending its impact beyond the housing sector, weighing on household wealth, consumer spending and local government revenues.

Policymakers have introduced a range of targeted measures aimed at supporting lending, stabilising the property market and encouraging consumption. However, authorities continue to avoid the large-scale stimulus programs used in previous downturns, preferring more measured support that limits the risk of another debt-driven property cycle.

For investors, the divergence within China’s economy is becoming increasingly clear. Technology, advanced manufacturing, renewable energy and export-oriented industries continue to benefit from supportive policy settings and strong structural growth trends. Meanwhile, property-related sectors, construction activity and many consumer-facing industries continue to face significant headwinds. Overall, the latest data reinforce the view that China’s economy is undergoing a structural transition. Growth is increasingly being driven by technology, innovation and advanced manufacturing rather than by property development and credit expansion. While this transition continues to support overall economic growth, weak domestic demand and ongoing property market challenges suggest that the recovery is likely to remain uneven, with additional policy support becoming increasingly likely over the coming quarters.

Emerging Markets: AI, Energy and Interest Rates Shape a More Selective Outlook

Emerging markets have continued to outperform expectations, although the drivers of that performance are becoming increasingly concentrated. Rather than benefiting from a broad-based global recovery, many emerging economies are now being supported by powerful structural themes, including artificial intelligence, digital infrastructure investment and the reorganisation of global supply chains.

The largest beneficiaries of the global AI investment boom are not necessarily the United States, but the countries supplying the hardware and manufacturing capacity needed to build it. Taiwan, South Korea, India and parts of Southeast Asia continue to attract significant investment in semiconductors, data centres, advanced manufacturing and digital infrastructure. Strong earnings growth, improving productivity and attractive valuations have helped drive renewed institutional interest in emerging-market equities.

India remains one of the standout performers among major emerging economies. Strong domestic consumption, ongoing infrastructure development and continued manufacturing expansion are supporting robust economic growth. Vietnam continues to benefit from the diversification of global supply chains, while Taiwan and South Korea remain central to the global semiconductor ecosystem and the rapidly expanding AI supply chain.

However, not all emerging markets are benefiting equally. Rising energy prices are creating a growing divide between energy exporters and energy importers. Commodity-producing nations in Latin America, the Middle East and parts of Africa are benefiting from stronger export revenues, improved fiscal balances and increased foreign exchange inflows. In contrast, major energy- importing economies face higher input costs, rising inflation and pressure on current account balances. For these countries, higher energy prices can reduce household spending power and further strain economic growth.

Another important consideration is the outlook for US interest rates. As US bond yields rise and the Federal Reserve maintains a relatively restrictive policy stance, financing conditions become more challenging for emerging markets. Higher US interest rates typically strengthen the US dollar and increase the cost of servicing US dollar-denominated debt. Countries with large external financing needs or weaker balance sheets may face capital outflows, currency depreciation, and tighter financial conditions.

The impact, however, is not uniform. Emerging markets with strong foreign exchange reserves, improving fiscal positions and robust domestic demand are generally better positioned to absorb higher global interest rates. India, for example, is less dependent on external demand than many export-focused economies and continues to benefit from strong domestic growth drivers. Meanwhile, countries heavily reliant on foreign capital or commodity imports may face a more difficult environment.

The chart highlights the strong long-term performance of emerging markets, driven by structural growth themes rather than cyclical recovery alone. AI-related investment, semiconductor demand and supply-chain diversification continue to support key economies such as Taiwan, India and South Korea. While higher energy prices and rising US interest rates create challenges for some countries, emerging markets with strong domestic growth, export competitiveness and favourable demographics remain well positioned for long-term outperformance.

The outlook for emerging markets therefore remains positive but increasingly selective. Economies positioned to benefit from artificial intelligence, advanced manufacturing, supply-chain realignment and strong domestic demand appear best placed to outperform. At the same time, investors must carefully assess a country’s sensitivity to energy prices and higher US interest rates.

Emerging markets are no longer simply a cyclical recovery trade. Increasingly, they represent a structural investment opportunity, but success is likely to be determined by exposure to technology, energy dynamics, fiscal resilience and the ability to navigate a higher global interest rate environment.

Commodities: Inflation, Monetary Policy and the Supercycle Debate

Commodity markets have returned to the spotlight in 2026 as investors grapple with rising inflation risks, geopolitical instability and the massive resource requirements of the global energy transition and AI buildout. While recent price movements have been amplified by conflict in the Middle East, shipping disruptions and adverse weather conditions, the longer-term investment case for commodities extends well beyond today’s headlines.

In the near term, higher energy prices and supply-chain disruptions are contributing to inflation across the global economy. Rising transport costs, elevated fuel prices and disruptions to fertiliser supplies are pushing agricultural costs higher, while ongoing geopolitical tensions continue to support energy markets. As these costs flow through supply chains, central banks face the risk that inflation remains more persistent than expected.

This is particularly important for US monetary policy. If inflation proves sticky, the Federal Reserve may be forced to maintain higher interest rates for longer or even tighten further. A more hawkish Fed would likely support the US dollar as capital flows towards higher-yielding US assets. Historically, a stronger US dollar acts as a headwind for commodity prices because most commodities are priced in dollars, reducing the purchasing power of international buyers.

However, higher interest rates do not necessarily invalidate the bullish commodity outlook. Unlike previous commodity cycles, today’s demand is increasingly being driven by structural investment rather than conventional economic growth. The world is simultaneously investing in artificial intelligence, data centres, electrification, renewable energy, battery storage, grid infrastructure and supply-chain reshoring. Each of these themes is exceptionally resource intensive.

Artificial intelligence alone is creating a surge in demand for electricity, transmission infrastructure and advanced manufacturing. Data centres require enormous amounts of power, copper wiring, aluminium cooling systems and construction materials. At the same time, the global electrification trend continues to drive demand for copper, aluminium, lithium, nickel and rare earth minerals used in electric vehicles, batteries and power networks.

Copper remains central to the electrification story because of its role in power transmission and electrical systems. Aluminium is becoming increasingly important due to its lightweight properties, transmission applications and growing use in renewable energy infrastructure. Demand for both metals is expected to rise substantially over the coming decade as governments and corporations invest in energy security, grid modernisation and industrial capacity expansion.

This is where the supercycle argument becomes compelling. Unlike previous cycles that were largely driven by Chinese property construction, current demand is emerging from multiple independent sources. AI infrastructure, electrification, defence spending, energy security initiatives and industrial reshoring are all competing for the same finite pool of resources. At the same time, years of underinvestment in mining and energy projects have constrained the industry’s ability to rapidly increase supply.

Gold has also benefited from this environment, trading above US$4,400 per ounce as investors seek protection against inflation, currency debasement and geopolitical uncertainty. While energy and industrial metals are linked to the physical transformation of the global economy, gold continues to serve as a hedge against the financial consequences of that transformation.

The key risk to the supercycle thesis remains economic growth. Higher interest rates can slow investment, weaken industrial activity, and temporarily reduce commodity demand. However, if the structural demand generated by AI, electrification and infrastructure investment continues to outpace supply growth, commodity markets could remain supported even in a higher-rate environment.

For investors, the important distinction is that today’s commodity opportunity is no longer solely about inflation or geopolitics. Increasingly, it is about owning the materials required to build the next generation of the global economy. Whether labelled a supercycle or not, the combination of AI expansion, electrification, energy security and constrained supply suggests that strategic commodities may remain one of the most important investment themes of the decade.