What Will 2026 Bring, Part 2
Last week we released the first five of our themes for the year ahead, where much of the focus was on artificial intelligence –and its potential impact on asset allocation, society, geopolitics and industry.
This week we focus on macro and geopolitical themes, which in the light of the US National Security Strategy document, are becoming vital for Europe.
Have a great week ahead.
#6 Wall Street Retro
One of the curious foibles of Donald Trump is his dislike of economic competitors. If readers care to watch, there are multiple videos of him in the 1980’s and 1990’s castigating the role of Japan as an economic competitor of the US. That period was also marked by the rise of capital markets – as marked by the film ‘Wall Street’ and book ‘Barbarians at the Gate’.
With Trump back in the White House, capital markets activity is building – merger activity is picking up, not just between companies but also business sales by private investment firms to industry. Cross-industry data suggest that takeover activity is picking up significantly, and in private markets, private equity deal making is enjoying a recovery. Other parts of the capital markets chain should also pick up – most notably IPOs and one of the tests for 2026 will be whether a string of large European fintech firms can come to market.
In recent days, the battle between Netflix and Paramount for Warner Brothers is emblematic of some of the major takeover battles of capital markets history, and perhaps a harbinger of future activity.
The Future:
While OpenAI for example is using acquisitions to build out an AI industrial structure, we do not yet have a landmark M&A deal in the fashion of Vodafone-Mannesmann in 2000 or RBS’ acquisition spree in 2007. A sign of things to come are reports in the FT that AI giant Anthropic is preparing an IPO.
An uptick in capital markets activity will be a boon for private markets asset managers, as it helps to free up capital. In equities, it may make value investing easier in the sense that cheaper, struggling firms are acquired, but the net effect may be to push equity valuations even higher.
Reading William Cohen ‘The Last Tycoons’(2007), William Burroughs ‘Barbarians at the Gate’ (1989)
Watch: ‘Wall Street’ (1987)
#7 Age of Debt
One of the most terrifying economic statistics is that the world has never been as indebted- most of the large economies (Japan, China, USA, UK, France and Italy) or about 60% of world GDP, have debt to GDP ratios over 100%. In previous decades 60% was considered excessive!
The good news is that households and corporates are not carrying excess debt loads, and that world household wealth is close to USD 500 trillion. Also, economists have been warning about the risks of indebtedness for some time, and we have not experienced a crash – and apart from an inflation scare, bond markets have been reasonably well behaved. Indeed, we are guilty of thinking of indebtedness as a risk event, rather than an economic process.
That said, as we head towards 2030, the consequences – economic, financial and political – of fiscal deficits and debt loads become all the clearer. At one level, public indebtedness will lead to shifts in economic power – private investors will take on the strategic investment projects that governments cannot afford to do (Canadian pension funds are doing so in the UK already).
At the country level low debt countries like Germany, the Netherlands, Ireland and Norway will make up a small group of ‘safe’ countries that will accordingly enjoy greater economic power. At the same time, France, the UK and perhaps the US will spend the next fifteen years in the ‘Debtor’s Prison’ where policy and politics become dominated by debt. The US and China are more interesting. The obvious response of the White House to indebtedness (it spends more on interest payments than defence) is to pursue a set of unorthodox policies that push the fiscal burden to allies (tariffs on Canada and military spending on Germany).
The Future: In markets, investors are already beginning to price some corporate bonds at yields below their sovereigns, and when credit markets do start to price risk large cash rich companies will be in an advantageous position, and in some cases can control more strategic assets, and the wealthy will find that governments need to court them rather than tax them. Instead of wealth taxes, expect governments to issue ‘Patriot’ bonds to wealthy families.
The one country where this may not be the case is China, which is vastly indebted. Having studied the way some European economies become heavily indebted in the aftermath of the euro-zone crisis, the Communist party will throw entrepreneurs, the wealthy and corporates into the Debtors Prison, and let them pay their way out.
High yield spreads in the US, Japanese bond yields and Chinese bank share prices are some of the key variables to watch.
Read: Charles Dickens’ ‘Little Dorrit’ (1857) and Honoré de Balzac’s ‘Lost Illusions’ (1837-1843) and ‘Pére Goriot’(1835)
Watch: A Christmas Carol (1984 version with George C Scott as Ebenezer Scrooge)
#8 From Multipolarity to the Fourth Pole
As the snippet on Sovereign AI suggests, strategic competition between the large economic blocs is the order of the day, and with globalization in the rear-view mirror the world order is evolving towards a multipolar form – one where the large zones do things increasingly differently.
While the notion of multipolarity is framed around the US, China and Europe, there may well be a fourth pole in the making in the shape of India, the Gulf States and other players across the ‘region’ (which we could define as those countries within a five hour flight from the UAE, which includes some 2.4 billion people across Asia, Africa, Southeast Europe and the Eastern Mediterranean).
There are two elements that will determine whether a ‘Fourth Pole’ emerges – that this coherent group of countries has mass or scale, and that it increasingly has a method – or distinctive way of doing things (I recently developed this theme in the UAE’s newspaper The National).
The notion of the ‘Fourth Pole’ is gathering pace around the very close relationship between the UAE and India (the very popular Hindu Temple in Abu Dhabi is just one sign), and the web of trade, finance and infrastructure deals they are engaging in across the region. This relationship may not ultimately become as deep as that of the EU countries, but it is beginning to look like a modern version of the ‘Coal and Steel’ community. The risk however, is that they overbuild capacity in the face of a forthcoming economic shock or recession.
The Future: The best indication that we had that the UAE is feeling both confident and more independent is that some well-connected government advisors have come up with an acronym for the west – W.E.N.A (Western Europe and North America).
Reading: UAE Future Vision , Peter Hopkirk’s ‘The Great Game’ (1990)
#9 Safe strategies in the Interregnum
The process by which globalization unravels and the multipolar world takes shape is going to be a long, noisy and uncertain one, which I term the ‘Interregnum’. It is an in-between phase, like the German idea of the ‘Zeitenwende’, characterized by noise, uncertainty, and multiple contests between the ‘old’ and the ‘new’ (finance is a good example with the emergence of ‘DeFi’ or decentralized finance).
The Interregnum has at least three phrases. The first centres around the crises of the old, crumbling order notably in debt and democracy, the second phase around social, legal, and economic superstructures built around new technologies (AI, quantum) as well as the evolving contours of the multipolar world order, and then thirdly, the acceptance and coalescence of new world institutions, governments, and companies around this new world order.
The Interregnum will be a period of breaking (down the imbalances that have built up with globalisation such as climate damage and debt) and making (new world institutions and the integration of technology into economies and societies). It will be a noisy, chaotic process and its success is not yet a given.
The Future: From an investment point of view, the shifting geopolitical sands beg the question as to how exposed investors should be to US assets (last week’s theme ‘Expensives to Defensives’) and what safe havens are available (small, advanced economy debt and corporate bonds perhaps, above ‘Age of Debt’). There are other questions percolating up – previously specialized asset classes like agriculture, infrastructure and energy infrastructure will come more into the mainstream and become more ‘strategic’. Un-correlated assets or at least those that have much reduced correlation with equities will also be in demand.
Stablecoins is another area where many scratch their heads – is it a bona fide asset class or an electronic gambling chip? The bigger picture here is the ability of large financial institutions to evolve and adapt quickly to new technologies, whilst maintaining well managed balance sheets. The many ‘buy now pay later’ platforms will likely suffer here.
Read: The Fourth Turning by Neil Howe (1997)
#10 Europe – Right on the Brink
Britain, France and Germany have never been as united, in misery that is. Each country is struggling to get growth going, the UK and France are indebted to the gills, and centrist governments in those countries are highly unpopular. In the political wings, new right-wing parties – the Rassemblement, AfD and Reform. All three lead on the issue of immigration, are less than clear on their economic plans and in their own special way, have close ties to Moscow.
The abiding lesson from Europe’s unpopular centrist governments is that if they do not confront difficult social and political issues, the public will tire of their mildness. In this sense, Europe’s liberals are being mugged by reality, and in the next year (at least in Germany and the UK) we are likely to see more dramatic attempts to combat illegal immigration, and to get economic growth going, with de-regulation emerging as the avenue through which this is achieved.
The Future: The popular narrative is that the US innovates, China copies and Europe regulates. This may no longer be true, especially given the advances China is making in numerous technologies, and Europe may surprise in that a bonfire of regulations may mark 2026. European growth momentum is already better than that of the US, and a positive surprise could be in the offing.
Read: Giuliano da Empoli ‘The Wizard of the Kremlin’(2022), ‘’L’Heure des Prédateurs’(2024).
Watch: The Great Beauty (2013), House of Cards (UK version) (1990), A Very British Coup (1988), and ‘La Conquête’(2011).
The Levelling 