Skip to content

CONTRIBUTORS

Stephen Dover, CFA

Chief Investment Strategist
Head of Franklin Templeton Institute

Lawrence Hatheway

Global Investment Strategist
Franklin Templeton Institute

Executive summary

  • In 2026, we foresee broadening opportunities across global capital markets, driven by attractive profits growth outside the United States and by global monetary policy easing.
  • Yield curves look poised to steepen, and the US dollar will remain weak.
  • We believe emerging debt and equity markets, European equities, and US smaller-capitalization stocks should lead the way in 2026. Still, US equity returns, including in the leading information technology sector, should remain solid, in our view.
  • Within private markets, commercial real estate debt, infrastructure and secondary offerings of private equity are our preferred areas.
  • Longer term, the key driver of returns remains innovation, above all in the information technology sector, private investments and digital finance.
  • That all said, we think a health warning is in order. We have entered an era of big and intrusive government, which risks lowering returns and increasing risk across capital markets over the remainder of this decade.

Introduction

As 2025 draws to a close, it is time to turn our attention to 2026 and beyond. In this global outlook, we highlight our top investment ideas, both for the coming year and over the longer run.

We encapsulate our 2026 (cyclical) and our long-term (secular) investment analysis into two separate categories of three themes each.

For 2026, our cyclical themes are: Broadening, Steepening and Weakening. Broadening reflects our conviction that investment opportunities across regions and asset classes are expanding. Steepening refers to yield curves, where falling short-term interest rates will incentivize investors to move out of cash holdings and into risk assets, including equities, credit and fixed income duration. Weakening regards the US dollar, which bodes well for emerging debt and equity markets, and is also an important development for portfolio management and hedging strategies.

As we elaborate in this global outlook, our cyclical themes intersect—akin to Venn-diagrams—with reinforcing implications across investor portfolios.

Turning to the longer term, we believe the following themes will dominate the coming half-decade: The Age of Intelligence, the Mainstreaming of Private Markets and An Era of Big Government. Each has profound implications for strategic investment decision-making.

In this global outlook, we will first consider the short-term outlook for 2026. We then turn to the long-term view. We conclude with the risks to our views and a summary of the key investment implications.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

The allocation of assets among different strategies, asset classes and investments may not prove beneficial or produce desired results.

Equity securities are subject to price fluctuation and possible loss of principal. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks.

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.

Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and repay principal on its sovereign debt.

Investments in many alternative investment strategies are complex and speculative, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative strategies may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment.

Currency management strategies could result in losses to the fund if currencies do not perform as expected.

Investing in privately held companies presents certain challenges and involve incremental risks as opposed to investments in public companies, such as dealing with the lack of available information about these companies as well as their general lack of liquidity.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

WF: 7342158

Copyright ©2025. Franklin Templeton. All rights reserved.

This document is intended to be of general interest only. This document should not be construed as individual investment advice or offer or solicitation to buy, sell or hold any shares of fund. The information provided for any individual security mentioned is not a sufficient basis upon which to make an investment decision. Investments involves risks. Value of investments may go up as well as down and past performance is not an indicator or a guarantee of future performance. The investment returns are calculated on NAV to NAV basis, taking into account of reinvestments and capital gain or loss. The investment returns are denominated in stated currency, which may be a foreign currency other than USD and HKD (“other foreign currency”). US/HK dollar-based investors are therefore exposed to fluctuations in the US/HK dollar / other foreign currency exchange rate. Please refer to the offering documents for further details, including the risk factors.

The data, comments, opinions, estimates and other information contained herein may be subject to change without notice. There is no guarantee that an investment product will meet its objective and any forecasts expressed will be realized. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where an investment product invests in emerging markets, the risks can be greater than in developed markets. Where an investment product invests in derivative instruments, this entails specific risks that may increase the risk profile of the investment product. Where an investment product invests in a specific sector or geographical area, the returns may be more volatile than a more diversified investment product. Franklin Templeton accepts no liability whatsoever for any direct or indirect consequential loss arising from use of this document or any comment, opinion or estimate herein. This document may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

Any share class with “(Hedged)” in its name will attempt to hedge the currency risk between the base currency of the Fund and the currency of the share class, although there can be no guarantee that it will be successful in doing so. In some cases, investors may be subject to additional risks.

Please contact your financial advisor if you are in doubt of any information contained herein.

For UCITS funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the UCITS Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 93a of the UCITS Directive.

For AIFMD funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the AIFMD Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 32a of the AIFMD Directive.

For the avoidance of doubt, if you make a decision to invest, you will be buying units/shares in the fund(s)/ sub-fund(s) and will not be investing directly in the underlying assets of the fund(s)/ sub-fund(s).

This document is issued by Franklin Templeton Investments (Asia) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.

Unless stated otherwise, all information is as of the date stated above. Source: Franklin Templeton.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.