T. Rowe Price has released its 2026 global investment outlook, stating that artificial intelligence had moved “beyond hype” and begun powering measurable change across the global economy and financial markets.
The firm said investor attention was shifting from AI’s potential to its profitability, with new opportunities emerging from rapid infrastructure expansion.
But, it warned that investors still faced headwinds from “elevated inflation and stretched market valuations”, requiring a balance between exposure to established AI leaders and opportunities in cyclical and international markets.
Higher yields and increased government borrowing were also underscoring the appeal of inflation-protected securities, while Australian equity leadership was expected to turn toward materials in 2026.
Thomas Poullaouec, regional head of global investment solutions, APAC, said: “With both fiscal and monetary policies being supportive globally, the economic growth backdrop in 2026 may be relatively stable compared to 2025.
“Risks to the outlook centre around sticky inflation, labour market weakness and the durability of the AI infrastructure spending.”
He added that the firm’s multi-asset team held a “balanced view” on markets over the next six to 18 months.
“We are neutral on asset allocation between equities and fixed income. Within stocks, emerging markets offer the best ratio between future earnings growth and valuations.
“Within fixed income, credit sectors remain attractive from a duration and total yield perspective as long as the economy continues to grow at a robust rate.”
Co-portfolio manager Scott Solomon said the Reserve Bank of Australia was “likely nearing the end of its shallow cutting cycle, sooner than most market participants expected”.
He said sticky inflation had been “tough to shake”, and that the Australian economy “appears poised to re-accelerate” as consumer confidence increased and government policy remained supportive.
This was leading to “more lending from banks and even more residential construction”. Solomon added that, “while it may not be until 2027, it’s very possible the RBA’s next move is to hike,” and that Australian government bonds could underperform in early 2026 as the market “re-calibrates to a set of scenarios that includes hikes”.
Portfolio manager Tom Shelmerdine said “2026 is expected to be a better year for the mining and energy facing components of the Australian market after several years of equity underperformance”.
He noted that metals prices had “benefited from debasement and a weaker outlook for the U.S. dollar”, with targeted Chinese stimulus “broadening out commodity strength beyond gold”.
He said positive earnings momentum had swung back to miners in late 2025, while weaker results from banks and industrials had “set the tone for a turn in equity market leadership toward materials”.
Equity analyst Nicholas Vidale said “continued elevated state and Federal government spending, combined with a decline in interest rates, is likely to drive a cyclical improvement in the domestic economy”, with housing construction a key beneficiary.
But he cautioned that with both immigration and capacity utilisation remaining high, “it might not be too long before rising inflation becomes a problem for the economy again”, potentially leading to higher interest rates and “a premature end to the cyclical uptick in private sector activity”.
He added that the outlook for bank earnings “appears to be improving”, but record-high bank valuations and a flattening yield curve could act as headwinds.
Global equity head Josh Nelson said: “The AI boom is far from over, but market leadership is beginning to evolve.”
He said attention was shifting from digital AI applications toward the physical infrastructure powering the next wave, including “energy, cooling, networking, and semiconductors”.
Nelson highlighted the fiscal impact of the “One Big Beautiful Bill” enacted in July 2025, which was expected to add “approximately US$200 billion to US$300 billion in stimulus” planned for 2026.
He said this fiscal thrust, combined with expected U.S. rate cuts, could provide a front-loaded boost to economic activity and corporate earnings. Nelson also pointed to Europe’s expansion phase following Germany’s suspension of its debt brake, Japan’s “attractive valuations” and improved corporate governance, and a more supportive regulatory stance in China.
International fixed income head Ken Orchard said “value may become harder to find in high-quality government bonds”, with fiscal expansion and economic growth pushing supply and yields higher.
He said expansionary policy in the US, UK, Germany and France was prompting governments to issue more debt and raising questions about long-term sustainability.
But he added that “credit fundamentals are solid”, with strong issuer balance sheets and robust market access.
Orchard said he expected default rates to remain below long-term averages, though “late cycle behaviours” made credit selectivity increasingly important.
He cited preferred strategies including keeping duration low, overweighting credit versus government bonds, underweighting U.S. exposure, seeking inflation-linked bonds, and focusing on emerging markets with a quality bias.
