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Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and sponsored by Canada Life. For today’s Soundbites, we’re talking about macro factors that could come into play in 2026 with Leonie MacCann, senior multi-asset portfolio manager with Keyridge Asset Management. We talked about headwinds, tailwinds, and regions she likes. And we started by asking what she sees as the most compelling opportunities.

Leonie MacCann (LM): We believe that the U.S. and the global economy are very well positioned for another year of resilient growth. What’s driving this? Well, there are a number of supportive factors. You’ve got ongoing fiscal stimulus, potential for further monetary easing, accelerated AI-driven productivity gains, stabilizing inflation, and a robust labour market. So I think 2026 will start off strong, and I think overall, you could see growth in and around 2.2% for the U.S. next year. Elsewhere, then, in Europe and Canada, from an interest-rate perspective, we think the ECB are done with rate cuts or will be on hold for now. And similarly, if you look in Canada, the Bank of Canada are also likely to stay on hold through 2026. And they were one of the more aggressive in terms of rate-cutting cycles of developed market central banks. So I think this improving economic backdrop, should see consensus around job gains and a rebound in growth and inflation coming back down towards target. There are risks, undoubtedly, to this view. Geopolitical risks remain high. You’ve got risks of unexpected escalation in trade tensions. You could see risk to the Fed’s ability to continue cutting rates, if you were to see persistent inflation. If you were to see further weakness in the labour market or a collapse in confidence around AI, then that could have a very negative impact on markets and growth. So all in all, I think there is further upside in equities, and I think that will be led by the U.S. next year. But given the risks and the fact that valuations are rich, we continue to be advocates of diversification. So we’re looking to maintain allocations across equities, fixed income, alternatives, and real assets.

Regions she likes

LM: China is a region where I think we’ve seen a real fundamental shift over the last year in terms of policy. So we’re now seeing a government that’s very much willing to implement targeted stimulus where necessary. So if we look into next year, China is forecast to grow by about 4.4% in 2026. And if you look at the latest five-year plan that was recently announced by China, that aims to achieve an annual growth target of about 4.5% through to 2030 for China. So what you’re seeing is China clearly doubling down on their efforts to become a global leader in technology and energy. And when you look at China from a valuation perspective, they are also more attractive than, say, the likes of the U.S. and other developed markets. Risks do remain, though. You’ve got poor demographics, continued property market weakness, and consumer confidence is weak. And added to that, there’s always this risk of potential political intervention in markets. So we are currently doing our research to weigh up those risks and opportunities. Europe is one region where, if you look on the one hand, their outlook has improved, but on the other hand, they still face headwinds. On the positive side, it is expected that Europe will see positive growth next year of around 1.3%. However, they still face fragmentation and over-regulation risks, as well as the risk of cheap Chinese imports flooding the European market in response to U.S. tariffs. So for this reason, we would have a preference for U.S. equities over European equities right now. However, we do hold European equities for diversification and valuation reasons.

Duration and credit risk

LM: So right now, we like duration for two reasons. Firstly, yields are at a much more attractive level than they have been in, say, the decade-plus that you saw post the Great Financial Crisis. So you’re getting rewarded for holding duration. And then we like the ballast that that can bring into a multi-asset portfolio. So if you were to see a risk-off event, yields have room to fall. However, I would say we are beginning to get a bit more concerned about the very long end of the curve. You’re seeing decreasing demand from the natural buyers of the longer end of curves. We probably have a slight preference for U.S. government bonds, just given there’s more room for the Fed to cut versus the ECB and the Bank of Canada. If we look, then, within credit, where we’re seeing more attractive opportunities are in private credit where you’re getting a yield pick up over public markets so there’s opportunities to get enhanced yield, and also the potential for enhanced risk-adjusted returns.

And finally, what’s the bottom line on planning for 2026?

LM: So I think the bottom line is cautious optimism, whereby we do expect to see further upside. However, there are risks, as I’ve outlined, and volatility is likely to remain a feature of markets and investing. So maintaining a diversified approach is going to be absolutely key to navigate that, but also a level of agility so that you can take advantage of opportunities as they arise. And that’s important because the worst thing, and the thing you don’t want to see, is investors get nervous when volatility spikes. And what happens is they’ll often sell out or move to cash when markets sell off. And then when markets have recovered and volatility is reduced, they’ll re-enter the market. So they’ll have crystallized that whole loss. Whereas if they had stayed invested, they would have had much better outcomes. So we see diversification as a key risk management tool that can ultimately deliver better outcomes and help clients and investors to stay invested in the market.

Well, those are today’s Soundbites, brought to you by Investment Executive and sponsored by Canada Life. Our thanks again to Leonie MacCann of Keyridge Asset Management. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.

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