Midyear global outlook: AI vs geopolitics

The following is the introduction to our 2026 midyear global outlook.

We are sharing this midyear outlook – my first as Global Chief Investment Officer – during a remarkable moment for markets and for our clients, whose assets we have the privilege of managing.

Global equities have continued to push higher, supported by resilient growth and sustained earnings upgrades – led in particular by technology and energy. But beneath the surface, momentum is becoming increasingly concentrated, with a narrow group of companies driving returns.

At the same time, fixed income markets are digesting a surge in bond issuance to support artificial intelligence (AI)-related expenditure reminiscent of the 19th century railways boom, if not greater in scale.

Investor sentiment is elevated, leaving risk assets more exposed to negative surprises, while the path of interest rates – and the possibility of even higher bond yields – continues to threaten valuations and government finances.

Within our outlook, we focus on the two forces responsible for much of this backdrop: the dramatic acceleration of AI and an ever-more contested geopolitical order. Key takeaways include:

• Tighter monetary policy could create space for AI-led growth
• We see potent investment opportunities in the quest of energy resilience
• The AI revolution may outweigh geopolitics as a long-term theme
• Conventional inflation hedges are not meeting investor needs

We also discuss how liability-driven investment strategies are evolving to capture market opportunities, and why investment-grade private credit and asset-backed finance stand out in today’s tougher landscape.

Instability, amplified 

This outlook underlines how AI is transforming capital allocation, with hyperscaler investment and the prospect of blockbuster IPOs capturing investor imagination. It also explores how the technology interacts with inflation, labour markets and financial conditions.

As an aside, I remain an enthusiastic advocate for the responsible adoption of AI within our own teams, where it can generate efficiencies and enhance – rather than replace – human judgement.

I also continue to find the Thucydides Trap a useful lens through which to view the current set of geopolitical tensions facing investors. The concept highlights the risks that emerge when a rising power challenges an established one, where competing strategic priorities can amplify instability.

In today’s context, this framework helps to explain how geopolitical rivalry can create persistent supply-side shocks, drive fragmentation and contribute to market volatility, even absent outright confrontation.

Decades ahead 

In a world defined by such powerful structural forces and heightened uncertainty, resilience can be found in preparing for a range of outcomes rather than attempting to predict a single path. This “prepare, don’t predict” philosophy is key to how we build portfolios at L&G.

It is also central to how we serve our clients, with a focus not just on navigating today’s uncertainties, but on delivering outcomes consistent with L&G’s commitment to thinking decades ahead.

Finally, I would add that bringing this outlook together has been a truly collective effort. As in rowing, performance depends on coordination rather than individual strength – each stroke aligned, each contribution reinforcing the next. I am proud of the depth, clarity and collaboration reflected in these pages.

Read our 2026 midyear global outlook.