Why 2025 rewarded valuation discipline – and what it means for portfolios in 2026

Kevin Toohey

Investors heading into 2026 face a markedly more selective market environment, with dispersion, valuation discipline and earnings durability set to drive outcomes, according to asset consultancy firm Atchison.

Markets in 2025 rewarded investors who resisted concentration and stayed disciplined on valuation, according to asset consultancy firm Atchison, as a long-running reliance on policy support gave way to a more selective, earnings-driven regime.

In its annual assessment of the winners and losers of 2025, Atchison found that while global equities delivered broadly positive returns, outcomes diverged sharply across regions and asset classes. Leadership rotated away from the most crowded trades of the past decade, with income and valuation once again playing a decisive role in total returns.

Kev Toohey, Principal at Atchison said 2025 marked a clear inflection point for markets.

“The conditions investors are facing in 2026 are very different to those that dominated the past cycle,” Toohey said.

“Markets moved away from being propped up by policy expectations and toward rewarding assets with durable earnings, realistic valuations and reliable income.”

The following asset classes stood out according to Atchison:

Winners

• European equities, supported by easing energy pressures, improving manufacturing sentiment and expectations of gradual monetary easing, with valuation discounts to US equities underpinning relative returns.
• Chinese equities delivered strong returns for a second consecutive year as targeted stimulus improved sentiment and earnings prospects, albeit with outcomes highly dependent on stock selection and policy awareness.
• Income assets, especially credit, benefited from elevated carry, reinforcing their role as a reliable income source and portfolio stabiliser.

Losers

• Concentrated and narrow exposures, where reliance on single themes or aggressive valuation expansion lagged broader markets, reinforcing the importance of diversification.

“Concentration was no longer a free option in 2025,” Toohey said. “Markets became far less forgiving of narrow leadership and stretched valuations.”

Positioning for 2026

Looking ahead, Atchison expects dispersion to persist as policy paths diverge and earnings differentiation increases across regions and sectors.

“Australian equities face headwinds from further rate pressure, keeping our focus on large-cap quality,” says Toohey. “International equities continue to offer the strongest opportunity set, particularly in Europe, Japan and parts of Asia, while US equities move to a more neutral footing after another technology-led year.”

He added that real assets, including A-REITs, remain challenged by higher rates, while alternatives continue to play an important role, albeit with some profit-taking in gold.

“The defining feature of the next phase of markets is selectivity, not just between asset classes, but within them.”