Paul Diggle

Aberdeen, the specialist asset manager, has issued its latest quarterly ‘House View’ on the macro-economy and investment outlook.

The outlook is for continued global economic expansion in the second half of 2026 and beyond, supported by AI-driven investment, resilient consumption, and fiscal easing. Growth is expected to run above trend at around 3.2% this year^[1], although inflation remains elevated following the recent energy shock.

While the macro environment remains supportive for risk assets, Aberdeen highlights that uncertainty is high, with geopolitical risks, inflation volatility, and late-cycle dynamics limiting overall conviction.

Peter Branner, Chief Investment Officer, at Aberdeen Investments said: “The global economy continues to show resilience, supported by strong corporate earnings and the ongoing AI investment cycle. However, we are clearly in a more complex phase of the cycle, where geopolitical risks remain elevated and inflation shocks are more frequent.

Our base case scenario assumes a stabilisation in oil markets and continued economic expansion, but tail risks remain material. Investors should therefore remain constructive on risk assets, while maintaining diversification and resilience in portfolios.”

Aberdeen expects inflation to remain higher than previously anticipated due to lingering energy effects, although underlying pressures are expected to moderate. Central banks are therefore likely to move rates by less than markets currently expect:

• The Federal Reserve is expected to remain on hold in 2026, with rate cuts resuming in 2027
• The Bank of England and ECB are also likely to pause tightening
• The Bank of Japan is expected to continue gradual rate increases

China continues to benefit from AI and green-tech demand, although weak domestic consumption and property sector challenges are likely to prompt further targeted policy easing.

Emerging markets broadly remain resilient, supported by AI-linked capital expenditure, though performance varies between regions.

Paul Diggle, Chief Economist, at Aberdeen Investments added; “The global economy has entered a regime of higher inflation volatility, driven in part by geopolitics and disruptions to supply chains. While the energy shock is proving temporary, future supply-side shocks may become more frequent.

This raises the probability of environments where equities and bonds move together, reinforcing the importance of diversification across other asset classes and regions.”

US Dollar

Aberdeen has downgraded its view on the US dollar, though it still sees the currency appreciating. The reduction reflects an easing in geopolitical risk premium, but the currency continues to be supported by relative United States (US) growth outperformance, AI‑driven capital inflows, and the potential for a lasting hawkish shift at the Federal Reserve. Over the longer term, however, gradual diversification away from the dollar, including rising central bank gold holdings, may act as a structural headwind.

Emerging markets

Aberdeen remains positive on emerging markets bonds and equities, where growth continues to outperform pre‑pandemic trends and benefit from AI‑driven capital expenditure, particularly across emerging Asia. While the recent energy shock may temporarily weigh on non‑commodity exporters, structural tailwinds remain supportive, and many Latin American economies retain scope for further monetary easing. However, dispersion across the region is increasing, with performance concentrated in a narrow set of technology‑linked exporters.

Private credit

The Aberdeen House View maintains a neutral stance on private credit, reflecting building late‑cycle concerns. Investment grade segments remain resilient and the yield pick-up over public markets is attractive. But there are emerging signs of stress in parts of the direct lending market, with concerns around underwriting standards, fund liquidity, and the potential for deterioration as the cycle matures.

Real estate

Resilient tenant demand and stable income streams support Aberdeen’s decision to remain positive on global direct real estate. Performance is becoming more balanced across regions and sectors, reflecting improving fundamentals, although select sectors such as UK student accommodation remain less attractive. Overall, the sector continues to offer dependable income in a more uncertain macroeconomic environment.

Infrastructure

Aberdeen retains a strong positive view on infrastructure, underpinned by powerful structural drivers including digitalisation, decarbonisation and rising defence spending. Significant global infrastructure investment needs are expected to create a sustained pipeline of opportunities, with private capital playing an increasingly important role. While renewable energy continues to dominate deal volumes, digital infrastructure is capturing a growing share of total value, and valuations are generally most attractive in small and mid‑market transactions.

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Notes:
[1] Source: Aberdeen, 2026 June. Forecast is offered as opinion and is not reflective of potential performance. Forecast is not guaranteed and actual events or results may differ materially.

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Irene Goh, deputy global head of multi-asset & investment solutions at abrdn, expects greater volatility in stock markets this year given greater geopolitical and economic risk. Elections are being held in many countries, with Americans heading to the polls in November 2024 to elect the next US president. On top of war in the Middle East and Ukraine, this has added to global economic uncertainty and may bring greater volatility to equity markets.

“Investors are less worried about sticky inflation, more about politics and elections as their top concern this year,” said Ms Goh, who helps manage multi-asset funds for abrdn.

“Ahead of the November US election, Donald Trump holds a lead over Joe Biden in national polling in the swing states. But much will ride on Trump’s legal battles and the perceptions of the economy at the time of the election. Either way, a Trump victory could bring about a jump in volatility given how polarising he is not just in the US but across the globe,” she said.

On top of geopolitical risks, economic challenges remain. abrdn expects slowing growth, moderating inflation, and falling interest rates over the next 12 months, but the soft landing probability has risen quickly due to supply side improvements.

“The rather even keel of scenarios tilting one way or the other, combined with a heavy geopolitical agenda for 2024, means market volatility will sustain. Markets will swing between moderating to lower inflation supporting equities versus slower growth raising concerns and leading to a contraction with a drag on equities.

Equity: favour the US and the tech sector; Australian shares deliver stable income

“On equity regions, we continue to favour the US and the tech sector but given the strong rally we witnessed last year and the resulting impact on valuations, we prefer to add to technology exposure through more diversified plays, such as via Korean and Taiwan equites. We expect Japan to do well benefitting from a shift in corporate behaviour that places strong emphasis on profitability and returns excess capital to shareholders. Within the region the other market that we continue to be optimistic about is India as we expect the country to deliver one of the strongest economic and earnings growth in the region. Finally, despite recent headwinds, equity valuations in China are reaching attractive levels. Unexpected monetary or fiscal policy stimulus could lead to a tactical rebound in Chinese equities.

“We are allocating to Australian equities which aren’t as fully valued and are producing stable income without as much volatility as the equity market overall. We like the fact that Australian shares also offer franking credits, which increases their appeal to investors seeking income,” she said.

Fixed Income: overweight amid attractive yield level; adding Australian investment grade credit

The outlook for fixed income is favourable with bonds offering greater yields as interest rates have risen. abrdn is recommending clients allocate more to investment-grade credit and listed alternative assets to help offset volatility and diversify investment risk, as well as to reap regular income.

abrdn has been building back positions in interest rate sensitive fixed income from low duration bond exposures including floating rate notes and senior secured syndicated loans which protected the portfolio against last 2 years of bond selloff. Fixed interest bonds going forward will allow investors to benefit from current higher interest rates and capital gains when Fed starts easing policy.

“We are also allocating more to Australian investment grade credit, with a preference for higher quality over high yielding corporate bonds. Investment grade bonds offer attractive spreads to enable investors to achieve much lower volatility than the equity market while still getting similar levels of income.

“We’re building an overweight position in fixed income as there’s every reason to think that over the next 12 months, we’re going to see duration do well and interest rates finally fall. We don’t like low grade corporate risk and have an underweight in high yield corporate bonds. We like US investment grade because balance sheets are quite healthy even if earnings have tapered off,” she said.

Listed alternatives: a useful source of diversification

“Listed alternatives offer growth and income sources that are insensitive to typical economic cycles and equities and bonds. They help generate stable income distributions at much lower volatility. Listed infrastructure such as renewable infrastructure, for example, offers attractive and reliable yields with links to inflation while some property investments such as student housing can offer attractive, reliable, and uncorrelated streams of income.

“Over the last two years, the equity and fixed income markets have moved in tandem due to increased cross-asset correlation, resulting in heightened volatility for multi asset funds.

“A meaningful allocation to listed alternatives in our Australian portfolios have not only helped improve fund performance in this environment, but also a useful source of diversification, ensuring our funds remain resilient amid market uncertainties,” she said.

By Irene Goh, deputy global head of multi-asset & investment solutions, abrdn

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René Buehlmann

The Asian market holds significant potential for long term investors and is set to outperform the United States once the Federal Reserve pauses and starts cutting rates, according to abrdn chief executive officer of investments, Rene Buehlmann.

Buehlmann says that he anticipates a growth desynchronisation between Asia and the US will happen mid-year driven by slowing growth and moderating inflation.

“There is stronger earnings resilience in Asia and the region’s earnings for 2024 are expected to grow at twice the rate of the US.

“We believe that investors are likely to reward Asia for its robust earnings growth and lower downgrade risks, and we expect key markets such as Korea, Taiwan, India, and Japan to be the main performers in Asia,” he said.

Buehlmann said that the brightest spots he sees for opportunities in the Asian region are Japan and India.

“The Indian economy is at the initial phase of a cyclical upturn, positioning it as one of the fastest-growing countries on a global scale.

“Driven by significant reforms over the last decade, the Indian bond market has delivered substantial outperformance versus a wide range of asset classes. The Indian bond market outlook remains bright, and this is an opportune time for investors to position themselves in the market,” he said.

“For Japan, we recognise compelling top-down and bottom-up factors driving the equities market, and additionally Japanese companies prioritising profitability and capital return.

“The Tokyo Stock Exchange’s efforts to enhance corporate profitability and governance have accelerated corporate restructuring, dividend payouts, and stock buybacks, all contributing to a positive outlook,” he said.

Buehlmann also believes there remains positive signs for a market recovery in China. He believes that current valuations appear attractive, and macro indicators show that targeted policy support is yielding positive results.

“A recovery in consumption services has commenced, with the potential to broaden out as consumers normalise their savings rate.

“A re-stocking cycle is in progress, expected to gain momentum in the coming months and we are optimistic that these developments could restore both corporate and consumer confidence, potentially leading to a sharp rebound in China. 

 “We remain positive on companies that can adapt to changing regulatory frameworks and align with Chinese policy objectives, particularly in areas such as digital innovation, green technology, affordable healthcare, and improving livelihoods,” he added.

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