Why Geopolitics Is Now Becoming A Historic Buying Opportunity

Read the market analysis and fund positioning

Disinflation and Energy

At the beginning of 2026, the global economy presented itself in fundamentally solid condition, but it is currently facing a severe geopolitical stress test. The escalation in the Middle East has thrown energy markets into turmoil and threatens to undermine the hard-won disinflation path. While the fundamental growth engines - particularly the AI sector and U.S. fiscal stimulus - remain intact, energy prices currently represent the greatest downside risk for global markets.

In addition to this acute escalation, other significant areas of tension are simmering beneath the surface: a cooling labor market in the U.S., the war in Ukraine, and structural growth weakness in Europe. The tariff issue, previously considered resolved, has resurfaced following a ruling by the U.S. Supreme Court and is once again causing uncertainty. Global growth is expected to reach around 2.8% in 2026, thereby matching the previous year and exceeding consensus expectations of 2.5%.

Global Economy: Growth Engine Running, but Unevenly Distributed

Despite the worsening situation in the Middle East, the fundamental picture of the global economy remains characterized - for now - by remarkable resilience, although momentum is distributed very unevenly across regions.

The U.S. continues to prove itself as the central growth engine. We expect GDP growth of approximately 2.6% in 2026, meaning the U.S. economy would surpass consensus forecasts of 2.0%. Growth is being driven by fiscal impulses from the “One Big Beautiful Bill Act” and looser financing conditions. However, the current oil price represents a stress test for U.S. consumers as well. A sustained price shock at the pump could dampen consumer sentiment and put additional pressure on the already cooling labor market (most recently with an unemployment rate of 4.5%).

China is expected to grow at around 4.5–4.8%, remaining robust due to its export dominance in strategic goods, rare earths, and industrial products. At the same time, domestic demand remains weak, and the real estate sector continues to weigh on growth by approximately one percentage point. China’s steadily rising current account surplus—aiming for nearly 1% of global GDP in the medium term - increases competitive pressure on the eurozone.

Europe is expected to grow moderately at around 1.3% in 2026. Structural weaknesses (high energy costs, demographic pressure, and overregulation) are partially offset by Germany’s fiscal impulse from its special infrastructure fund and increasingly robust consumer demand in Southern Europe. France remains a concern: political uncertainty, a high budget deficit, and rising unemployment are weighing persistently on the investment climate. The eurozone manufacturing PMI rose above the growth threshold of 50 in February for the first time since August - a first, albeit still fragile, sign of improvement. The current escalation involving Iran affects Europe more severely than the U.S. due to its energy dependence, potentially jeopardizing this recent improvement.

Inflation: A Return to Normality - With Regional Differences

Global disinflation, which had been the dominant theme through February 2026, is now facing a test. So far, it had progressed at varying speeds. The duration of the Middle East escalation will therefore play a decisive role for the inflation path in 2026.

U.S.: Core inflation remains at around 2.8%, driven by tariff pass-through effects estimated at approximately 0.5 percentage points. Without this effect, inflation would already stand at about 2.3%. Favorable base effects in the second half of 2026 are likely to push inflation significantly toward 2%.

Eurozone: The inflation situation in the eurozone is considerably more relaxed. Headline inflation stands at around 1.9%, close to the ECB’s target; core inflation remains at 2.3% but shows a clear downward trend. Due to declining wage growth, rising productivity gains, and the pass-through of lower energy prices, we expect headline inflation to fall below 2% in the second half of 2026. Long-term upside risks remain due to unfavorable demographics and the EU Emissions Trading System ETS 2 (from 2028 onward).

Monetary Policy: Cautious Easing, but No Rate Reversal

Central banks find themselves in a classic dilemma between supporting growth and fighting inflation.

The Fed is pausing for now. Despite signs of labor market weakening (unemployment most recently around 4.5%) and inflation that remains stubbornly above target, there is little urgency for further action at present. We assume, however, that under the new Fed Chair Kevin Warsh, at least two additional 25-basis-point rate cuts to 3.0–3.25% will occur - particularly if the labor market continues to soften.

The ECB remains in a wait-and-see mode. While inflation has almost reached its target, economic growth remains moderate. Some market participants expect an initial rate hike by late 2026 in response to a medium-term inflation increase driven by demographics and fiscal stimulus. We consider this scenario premature and rather expect the ECB to wait and observe macroeconomic developments in 2026 - or potentially even follow the Fed with further rate cuts.

The Bank of Japan (BoJ), by contrast, is in a gradual rate-hiking cycle. Stable wage growth and more firmly anchored inflation expectations support incremental increases toward 1.0–1.5% by mid-2027. In our view, this carries the risk of a partial unwinding of yen carry trades - with corresponding volatility potential for global risk assets.

Core Convictions & Market Outlook

The focus remains on the three asset classes: bonds, equities, and currencies.

Bonds

Corporate bond spreads remain at historically low levels - European investment-grade bonds trade at around 80 basis points, and high-yield bonds at approximately 274 basis points. An acute spread widening is not our base case, but current levels offer little risk buffer. Therefore, maintaining high quality in portfolios is especially important. The recent volatility in bond prices involving alternative asset managers such as Blue Owl should serve as a warning in this regard.

Inflation is largely under control, and economic prospects remain subdued. Therefore, we expect interest rates - both short- and long-term - to remain stable or decline further.

In this environment, we selectively favor longer-duration bonds, focus on high quality, and maintain a neutral allocation.

Equities

The macro environment remains equity-friendly: robust growth, declining inflation, solid corporate earnings. The most recent earnings season exceeded consensus expectations. While around 55% of companies in Europe reported earnings above expectations, in the U.S. the figure was approximately 74%. At the same time, market breadth is increasing - for example, the equal-weighted S&P 500 Index has outperformed its market-cap-weighted counterpart since November 2025.

In the past month, the disruptive force of artificial intelligence - or rather fear of it - triggered notable consolidations, particularly in software and cybersecurity. Reasons included the release of additional AI agents and a sharply worded research paper by Citrini Research written from a 2028 perspective, which quickly went viral. In our view, it is still too early to seek renewed exposure in this sector.

We maintain our bullish stance but continue to underweight technology stocks. The combination of attractive growth, relatively well-anchored inflation, and a continuing earnings trend still represents a kind of Goldilocks scenario.

Currencies

The U.S. dollar continues to face significant headwinds, even though it is currently fulfilling its role as a safe haven. Reasons are multifaceted: beyond years of accumulated overvaluation, narrowing growth and interest rate differentials, a dovish Fed, and the persistently high current account deficit weigh on the greenback.

We now consider the undervaluation of the yen to be overstretched. While arguments for further depreciation remain, it would not take much for the pendulum to swing forcefully in the opposite direction - potentially triggered by further rate hikes by the Bank of Japan.

Against this backdrop (directionless USD and a potential yen trend reversal), we maintain a neutral U.S. dollar allocation and have initiated a first position in the yen.

Risks: What Could Derail the Outlook

The three most important risk scenarios for 2026:

1. U.S. recession risk: Increasing stress in the labor market - particularly if AI-driven productivity gains reduce hiring more quickly than expected - could trigger recession fears. This scenario, described in extreme terms by Citrini Research, would have enormous market implications via collapsing consumption: risk-off in equities, a flight into short-dated U.S. Treasuries, and associated spread widening in bonds. We estimate the probability for 2026 at below 10%.
2. Geopolitical escalation: Beyond the war in Ukraine, interventions in Iran are weighing not only on commodity prices but on global risk premia more broadly. As the duration and scope of this Middle East escalation cannot currently be assessed, we consider the associated risk to be underestimated. Additionally, confrontation involving another Chinese oil supplier marks a new step in the escalation between the U.S. and China. We expect no major breakthroughs from the bilateral meeting between Presidents Xi and Trump at the end of March. President Trump has effectively replaced the lost negotiating tool of “tariffs” with access to oil resources. It remains to be hoped that China does not replicate this great-power behavior on a smaller scale in Taiwan—this would constitute an ultimate risk-off event. While geopolitical shocks increase short-term volatility, they often offer historic buying opportunities in the long term.
3. AI valuation correction: Markets have already priced significant AI productivity gains into corporate earnings, while hyperscalers are simultaneously increasing capital expenditure intensity. Disappointments in monetization speed or technological disruptions (e.g., cheaper training algorithms) could accelerate the rotation out of AI stocks already underway and increase volatility again.

Conclusion

The year 2026 presents a constructive but not risk-free macro environment. We are in a “Goldilocks” setup: above-trend growth, declining inflation, and central banks largely on pause or engaging in moderate easing. Market breadth is increasing, the AI theme is spreading globally, and fiscal impulses in Germany and the U.S. are supportive.

We favor an overweight in equities, high duration combined with high quality in bonds, and a neutral FX positioning.