Aviva (AV:LSE) FY 2026 earnings call transcript

Welcome to our Aviva Investors 2026 House View. We're glad you joined us. I'm Nicole Lowe. I'm an investment director here at Aviva Investors, and I'm joined today in the studio with a panel of our experts to help provide some investment insight, not a crystal ball insight, for the coming year ahead. I'm going to go ahead and introduce our panel. We have Alice Mullen, who is a director in our private markets research team. We have David Nowakowski, who is a senior strategist, And we have Sinul Krishnan, who is head of multi-asset. Glad you all have joined me.

Thank you. Now, over the next 45 minutes, we are going to have a quick look back over 2025, which was quite a year for investors. And then we're going to pivot and look forward to 2026. We're going to provide some discussion and insight on our key investment themes for the year and then how we're positioning our portfolios. But before we get moving, I just wanted to highlight a few important things about the dashboard that you see in front of you. I'll focus on the top three things that you see on the slide in front of you. The first is that we would love to hear from you. So if you have questions, feel free to pop those in the Q&A widget that's located at the bottom left of your screen.

Secondly, the house view document in full and this presentation are available for download. So you can use the resource list widget to download that information. Then lastly, you may want to lean in for this. Today's webcast qualifies for 45 minutes of structured CPD credit. So if you listen with us through the whole webcast, you'll get a certificate that's available for download in the certification widget.

Now, that's it. Let's just jump on in then. I want to set the stage to start by looking briefly back at 2025. Now, we have a chart here that is showing us the returns of the major asset classes over the year in GDP terms. The picture certainly does not do justice to what happened to investors, the amount of gray hair investors may have had over the year, the complexities.

You have a pretty strong picture here with gold, the superstar, delivering 53% return in GDP terms. You look then across the right of the slide, everything's pretty much positive. You even have double-digit equity returns over the past year. And then you have poor old dollar on the far right with its weakest year in 50 years. So I wanted to just start by asking each of our panelists for a single word to try to sum up their view of the economic or financial market story over last year. One word, and remember, this is a family-friendly program.

I'll start with you, Alice. Yeah, I'd say from a private market perspective, the word I'd use is momentum. Okay.

David? I'll go with instability. Okay. And it was traumatic at times, but as you showed, we came through it okay. Yeah. Okay.

Sunil? I don't know if this is a word, but I'm going to go with Newsy. Newsy, I like that. So basically kept everybody on their toes. Sunil, I'm going to give you the challenge, though, of trying to distill this market picture down into a quick summary, you know, why you went for Newsy. And then at the end, I would love to hear your views on whether the whole AI tech theme matched your expectations in the past year.

All right. Well, I went for Newsy because I think we always talk about uncertainties in markets. But it really felt as though 2025 was a year when every week, sometimes even every day, there was just something else for investors to have to factor in. Does this change my investment view? It certainly didn't help that sometimes that news was transient, as in it was gone within a couple of weeks, or even it reversed the last piece of news. And that really just complicated the picture. Having said that, I do think we can try. We're lucky to have a bit of hindsight now to pick through the bones of last year and say what were the key themes.

I think the first one of those was there is a message in the breadth of gains that you saw across equities, fixed income markets, private markets, commodities, etc. And I think that says something to resilience and the ability of markets to gradually refocus on fundamentals through periods of great uncertainty that we had most clearly in March and April.

The second point is it wasn't all business as usual. I do think that in the details, there were some clear signs that investors were wondering if some fundamental parts of the financial system or the relationship between states, et cetera, needed to be rethought. If you look at, for example, the U. S. dollar performance, which was pretty weak in the first part of the year, consolidated and then had a weakish end. the performance of gold, which you've already called out. I think what these point to is investors just wondering about shifts in some of those core relationships and correlations that we maybe haven't seen in the past. And then the last one is, while there may have been a question about, for example, the role of the United States in terms of its global centrality and whether, indeed, the government kind of wants your money there, it didn't affect the US stock market.

And I think that really speaks to your question in terms of AI, which is it was definitely capital spending and profitability going hand in hand that really insulated the U. S. stock market from some of those concerns about the role of the U. S. in the world. Okay. All right. And that is one we're going to talk more about a little later on. But with that, I want to jump straight into our first poll question here right out of the starting gate. A quite simple answer, but do you viewers think that AI stocks will continue to rise. While we let viewers vote, I mean, to your point, last year was incredible in terms of statistics and headlines.

We saw you had NVIDIA at its peak at $5 trillion in market cap. You had, you know, the news of DeepSeek, which with its, you know, open source large language models could potentially disrupt the U. S. models. And then, you know, we talked about this, but the AI stocks and those kind of themed stocks really driving S&P returns. At one point, there were four stocks accounting for about 60% of the return. It's pretty incredible.

Let's see here where we're at. It looks like, okay, so we've got 77% saying yes, 22% saying no. Does that surprise you somehow? um i'm surprised that people are as confident i mean it may be that the 77 percent are kind of 51 49 in terms of conviction that's to be seen but but i i do think it's going to be um an important year for delivery in certain areas we'll probably you know go on to talk about that a little bit more um so i wouldn't want everyone to feel too confident about it yeah but i i agree there's definitely a path for the stock market as a whole and maybe some of those key players to benefit even into 2026.

Possibly some nuance then in there.

Okay, thank you. Well, we've talked about tech just now, innovation obviously sort of dominating public markets in a lot of ways, but there is innovation in private markets as well and impact there, which help drive capital flows. So let's shift gears. We have a chart up on screens now showing us the private markets fundraising in Europe over the past handful of years. Alice, there has been obviously an increased appetite in private markets in Europe in 2025. Can you tell us about that?

Yeah, so we definitely saw that increased sentiment across private markets and the fundraising data is one of the great ways for us to actually see and articulate this. If we look back, we included a bit of history on the chart that we're showing on screen. So, between 2022 and 2024, the hiking cycle fundamentally changed relative value in private markets and led to a reduction in fundraising while investors reassessed their portfolio allocations.

Private debt was quite buoyant through this period because it benefited from that elevated rates environment, but this began to soften in 2024, the hiking cycle. um so if sorry the cutting cycle um if we then look at what happened in 2025 we did see that pick up across the board and we have real estate equity in green and private debt in blue here um that we'll see that they've increased but they're still below those historical levels whereas the real standout for 2025 was infrastructure equity with geopolitical changes alongside fiscal support really acting as a catalyst for investment.

If we look underneath this in infrastructure equity, over 50% of investment volumes over the last few years have been in renewables and digital infrastructure. This isn't just this kind of sector allocation. This is a long-term strategic allocation towards assets aligned with global megatrends. So looking at the outlook for 2026, We're really positive on the momentum and investor sentiment to continue to grow in private markets. This is coming through in investor surveys where over 85% of investors are saying that they're looking to increase or maintain the allocation to private markets over the next few years, citing diversification and illiquidity premium as some of the core drivers behind that.

Absolutely. And it sounds like the structural themes you mentioned will also keep that momentum going. So 2025, not exactly a calming experience for investors. But the question now is what comes next. We are going to now talk about the year ahead. And why not start with a poll question so we can sort of understand what you viewers are most worried about in 2026. The poll question is what is the greatest risk to watch for in 2026?

We've got geopolitical risks, obviously, news coming out daily, liquidity crunch in private markets, inflation increases, and the AI tech bus, which feels like everybody is having some chat about that. But David, I guess, would you see, I mean, there's a lot of risks we could probably put up there. What's something you think is missing in that?

Yeah, so all of these are included as themes or risks in the current house view. One that we considered was the fiscal risks on the government debt side. And government debts are very large. Fiscal deficits are unsustainable. But we don't see turbulence in the government bond market or another list trust moment as an imminent risk. It is perhaps a tail risk or a black swan event. But central banks have cut rates. And, yeah, there seems to be stability in that sector.

Okay. Great. We'll see where we've gotten to here. Okay. Wow. That is interesting. I have to be honest. I'm not surprised, but I am surprised, I guess, at how high the geopolitical risk percentage has come out. 70%, 18% on the AI tech bus, which is interesting. David, thoughts? Does that surprise you?

It worries me. But no, it's definitely been in the headlines. and there have been a lot of turbulent moments in the past 12 months. And yeah, so it is something that we're keenly aware of.

You know there have been geopolitical risks that have materialized They been pretty short lived in their impact on markets even even oil markets and especially risk assets Yeah I mean some of the geopoliticalists we see just couldn't make up. Could you? Thanks for seeing in the news in a minute.

Anyway, let's now move on to talk about both the risks and opportunities in our key investment themes for 2026. These three themes are, first, growth, rebound, and the end of the G10 rate cutting cycle. The second, again, is the AI investment cycle, sort of this rapid expansion and increasing influence. And then third is geopolitics of trades. We'll spend time talking about that. But are we in a temporary truce? So let's start with growth. On the slide in front of you is our growth expectations for 2026 against 2025.

You know, growth has been OK. I think there were fears people had, obviously, last year around recession didn't help. They were based largely on President Trump's policies, and they didn't play out. And based on our outlook, we're looking and expecting global growth of around 3%. David, what do we see as the key drivers behind that growth?

So the title of this House view is that there are tailwinds now for growth. And a big part of that is that instability and turbulence that we suffered in 2025. a lot of that now is fading at least a little bit. So we had the tariffs, they were imposed and pulled back. That causes severe shock and recession risks. But that now seems to be fading. And even though the tariffs are not growth positive, they're more or less stable. And so investors and consumers can process it and make decisions more normally. So that's one of the first aspects. And of course, markets have recovered. So there are some positive wealth effects. Then the next thing is the U. S. passed a very stimulative fiscal budget.

It doesn't help everyone. So there are some negatives there too for some parts of the economy. But broadly speaking, there are tax cuts and deregulation. And some of it has already kicked in and will kick in more into 2026. Likewise, Germany and the EU more broadly did almost a 180 on their fiscal stance and opposition to fiscal loosening. So they made big promises, but the money actually took time to materialize and it's going to filter into the economy in this coming year. And then finally, yeah, and in Japan also there was instability, but a new leader there with a supplementary budget that was larger than expected. So fiscal everywhere.

And then finally, we mentioned, and it stood out on the chart, Alice showed that there was infrastructure investment and the AI and tech boom we'll talk more about as well. But the spending, which was already large, actually was increased and expectations are for hundreds of billions in the coming year, trillions in the coming years. So that's a positive backdrop, I think, for growth, for business spending, and for the consumer.

So that recessionary risk sort of still seems low. Is that fair to say?

Yes.

Okay. Now, you mentioned inflation. Obviously, it has eased significantly from when we were looking at double digits in 2012. Everyone now seems to be operating under this assumption that the inflation story is over. but is it really?

Yes and no. So the big spike that we see in 2021, 2022 coming out of COVID, and then the energy shock when Russia invaded Ukraine, that part of the inflation story is over, and inflation has come down quite a bit. That in turn is another tailwind, because people were able to save, and incomes and wages grew. And at first, they weren't really keeping up with inflation now, at least on aggregate, they're positive in real terms. So another support to spending.

And it's also enabled central banks to cut rates from very restrictive levels in 2022, 2023, gradually, even as inflation was above target.

But inflation came down differently in different places. So in the Eurozone, it's at target, in the UK, in the US, in Japan, and in some emerging markets, it remains above target. So there's been this dispersion that we've highlighted in previous house views in how central banks are cutting rates. And again, it helps to have the lower rates in terms of property market and construction and so on.

But the flip side to our positive growth outlook is that central banks are nearing a tricky point where they hope to land around neutral, but then will give the signal that they're done. And that's always a tricky time for currency and bond markets.

Okay. Well, that leads very nicely into my next question for you, Sunil. What does this interest rate picture then mean for bond and currency positioning?

I think in terms of change, maybe what's special about 2026, the idea of meaningful divergence between different regions, I think is a really important one and one that we're not really used do. I mean, if you think back to the kind of early 2000s or the 2010s, it was really very much a period of a great deal of synchronization where all you really needed to do was keep an eye on what was happening to demand in the United States, central bank policy there, and it set the queue for bond returns everywhere. Pretty difficult for FX investors because there wasn't really much difference between regions to go for. But I think that's potentially quite different now.

and to take an example of that so we might feel look robust outlook low risk of recession probably not great news for the treasury market is it but actually you then have to look at what's happening specifically within the united states softish labor market a central bank that has noticed and is factoring that into its plans for interest rates and to say well maybe actually being cautious globally on bonds may not work so well as applied to the biggest bond market in the world. Now, there are certain other markets where perhaps, certainly versus market expectations, it feels as though there's not that much chance of a dovish surprise. So Europe and Japan would be good examples of that.

And then if you think about are there any opportunities to actually use government bonds as in to lean into them in a portfolio, you look at markets like the United Kingdom from a position of maybe more economic weakness, Australia a position of more economic strength. But in both cases, actually, markets expectations for the central banks are perhaps a little bit on the hawkish side. So, that gives us an opportunity maybe to build those bond markets into our portfolios. So, I think that more regionalized thinking is going to be important. And of course, that is catnet for FX investors because it's those regional differences that really drive the performance. And so, as we see things today, we do think that some of that, if you like, geographical reimagining that's happening for international investors probably still does act as a bit of a drag on the US dollar.

And particularly if US interest rates do decline somewhat this year, that's something that may lead investors to talk again, as they did maybe a year ago, about dollar weakness. And then you look at the other major economic blocks. So perhaps for us, the euro area, again, where there's more stability in interest rates, Emerging markets, I think, are a really interesting story of improved fundamentals, but also offering quite attractive interest rates as an area where currencies can actually appreciate versus the dollar.

Perfect. So, the policy divergence recreates that need to be a little bit more selective geographically. Let's now move on to our second theme, AI investment cycle. As mentioned earlier, tech was the dominant theme of 2025, and we are seeing an incredible amount of CapEx spending in the sector, vastly exceeding, I think, everyone's expectations. And as you can see on the chart on your screen, we are showing the CapEx of the major U. S. hyperscalers over time, and those hyperscalers are the large cloud and computing companies or providers.

There's been a significant increase here, as you can see, in looking from left to right on this chart. CapEx is projected to reach around $530 billion. That is three times their level of CapEx prior to the arrival of the AI large language models. So, Osana, I'm going back to you. What does this mean, then, for markets and investors?

We could probably do an hour just on that, but I'm not sure that our audience would thank us for that.

I think the first thing to say is it's worth reminding ourselves where we were a year ago. So if we were having this conversation 12 months ago, the real question was we'd seen a significant pickup in capital spending through 2024. Could that possibly be sustained in 2025? And what the chart shows is that not only was it sustained, but actually almost from this point a year ago, the companies started to say, actually, look, we're going to increase our capex plans. We're going to spend more than we thought. So there was no question about their ability to continue to spend. And I would certainly say now, don't bet against their intent. Their intent is to use scale to try and achieve a competitive position and a position of competitive dominance.

And they will do that. And it will drive not just their spending plans, but obviously an entire supply chain's profitability, whether we think about the chips themselves, we think about the construction work that will be required for the data centers to put them in, the implications for power and utilities. This is all significant, but I think it's to be believed in terms of the intent of these companies to spend the money. Now, the second key question for investors, and this brings us back to the 77 versus 22 on the voting side, is I do expect investors' level of scrutiny is gradually increasing in terms of a huge amount of spending. What's the return on investment?

The way that we have looked at this really focuses on what's happening in terms of end demand. So the hyperscalers today will tell you what we're spending we're talking about is just to meet existing demand. And I think the validation of that in terms of the move from what you might call training spend, so hyperscalers spending to build the models, to what we might call inference spend, which is adopters, clients of these companies actually spending on asking the questions, potentially in an automated way, and then using the output, I think is going to be really key to determining that return on investment. So that's going to be the key watch points. We certainly think it's possible, but it will be an area where we will need to see the evidence really coming through consistently in the year of that increased adoption.

That makes total sense. David, now kind of moving on from that point, you know, investors have had real concern over concentration risk with tech. But can you talk us through this slide that we're looking at right now and what we're seeing across the broader market as sort of second and third order effects of this tech theme?

Yeah, sure. This slide needs to be explained a little bit It just a count of the different sectors in the S and which ones are positive or negative in a given month and then the percentage of the total And so what we saw in 2022, for example, with rate hikes, the market in general was down. After that, there was some recovery. But when you look at this chart, most sectors continued to perform poorly. And so you'd think that either there was a recession or the S&P surely wouldn't perform. But as you said, the tech sector really carried everything, particularly the Mag7 plus friends. But what we saw recently, starting about August last year, was that the fundamentals had changed.

So the reason for this chart was that earnings were consecutively downgraded for most sectors as well. And that only ended last year. And now it's picking up precisely for what Sunil was explaining before. All this AI spending has started to filter through other parts of the economy. And yeah, there's been a pickup in expectations there as well. So we think that whether it's the power and utilities and the grid, as well as other parts of the economy that are gonna benefit from the fiscal spending I mentioned earlier.

Yeah, we expect a broadening in the market breadth to continue through 2026.

Okay, so outside of AI, kind of looking more like early cycle. Yeah, so that was the chapter on the market outlook. Discuss that as well in detail that people are saying is AI and is the market, which has done very well for over two years, now late cycle. This chart shows that perhaps it's early cycle. Okay. I'm furthering you thought you sort of teed me up perfectly. for a question for you, Alice, around that sort of second order of beneficiaries, you know, like data centers, grid upgrades, electrification, you know, which private market strategies then look most attractive?

Yeah, so if we start off on data centers, we've already talked about a bit today. For a private market perspective, access routes can be via real estate, infrastructure, private credit or private equity. So depending on the structure of the investment and the risk profile, There's actually quite a breadth of capital available there. I think for the demand side, alongside that, the investment from the hyperscalers themselves is really showing that demand piece of data centers.

But I think what will be key will be to get the capacity side, the supply side of data centers right in order to meet that growing demand that's coming through already. So this is to us where we see those second order beneficiaries in private markets really showing through. and it's that limitation that we're currently seeing around that power grid and around energy.

And so when we're talking about kind of second order beneficiaries, where we see those investment strategies, it's all around energy itself and also alongside the energy transition.

So if I'm kind of thinking about some examples, an asset investment that we did last year in 2025 was actually in battery energy storage in Europe. And so battery energy storage can help kind of stabilize that power grid network. It can pass on savings to end users and energy pricing. And it can also ensure that renewable power is kind of constantly powering. So alongside actually driving that AI thematic, if we think back to the global trend, megatrends that I talked about earlier, there's really strong alignment to that energy transition.

And it's even further than that, in that change in global order that we're seeing, also energy security coming through. So that's why we see huge opportunities.

Right. Yeah. So again, I kind of just back to momentum earlier. So private market strategy is very much tied to the megatrends. But a challenge is kind of cracking the energy piece to this. Let's move on now to our third theme and another force sort of shaping investment decisions. We talked about it a little bit at the start. It was the highest rated answer in our poll question, geopolitics. So we're going to focus here on geopolitics of trade. Now, trade discussions often focus on tariffs and supply chains. And the Trump administration's policies last year certainly added some drama to that. But the real sort of fault lines in trade run deeper than that. And David, you know, we see that the West is reliant on China for access to, you know, rare Earths.

And China is then reliant on the West for, you know, high-end semiconductors, for iron and copper, for energy. We've got a chart here that I think actually is extraordinary, showing us China's dominance in rare earths. And this has implications. So can you talk us through the chart, I guess, and the trade tension that this creates? And are we in a new kind of Cold War?

Yeah, so unfortunately, we are in a Cold War of sorts anyway, it's not the same. And the kind of mannequin-y, good versus evil, Cold War One, perhaps, not as simple. but we're definitely seeing that vis-a-vis US and China in particular. Now, the initial tariffs and trade war wasn't particularly part of the Cold War, but we saw that the escalation really happened between US and China. And then the trump card came when China threatened to cut off rare earths and other critical minerals. So all of these are not rare earths, but there are a lot of things that China is pretty dominant in. And so after that, they basically won that round and had to de-escalate.

So the Cold War 2.0 or whatever you want to call it is continuing now. And part of that is the defense theme. So that's another sector that's doing quite well in equity markets. But we're seeing a much broader confrontation and competitive confrontation between US and China and other actors as well. And some of these are around the new technology. So whether it's semiconductors and things that go into them, the technology itself, and the AI models and other technologies like quantum computing, that's going to be an arms race.

And then these rare arts and critical minerals and resources and energy more generally, we're seeing that that's going to be a crucial sector where both China and the US try to achieve dominance. China is not just sitting back and watching either. They've been trying for many years now to reduce their dependence on the West and prepare for a potential adverse couple of years.

So they're investing heavily as well. In fact, over-investing in some areas. So, yeah, I would agree with the audience on this one that the risks are rising.

Yeah. Okay. Well, that's great. It is unbelievable to me how we're sort of seeing things escalate just over time. Sunil, how do you manage these geopolitical risks within a multi-asset portfolio?

With difficulty. I do think that in some sense the counterpart of what we were talking about in fixed income markets in terms of that regional divergence applies in, if you like, the growth markets like the equity market, but potentially with a slightly different punchline, because we're now potentially looking at quite different regional sources of demand. And that potentially creates different types of business cycles in different parts of the world, not just on the demand side, but also on the supply side. So, for example, there will be many companies in Asia for whom the U. S. is not the be all and end all in terms of their demand and their revenue pattern. It will be China.

There will be European companies for whom a strong U. S. export market by itself is not enough, because of the significant competition coming from Asia and from China in particular. So bringing that together, how do we interpret that? It means that when we're looking for growth and looking for those kind of returns on corporate profitability, we are actually looking to diversify quite a bit. And we're seeing opportunities across different regions potentially benefiting from some diversification within them. The other point in terms of diversification, of course, is to say the overall impact on the system, both in terms of the efficiency of the system and the economic growth and the profitability we might see, but also in terms of resilience and robustness to risk is uncertain.

And therefore, no surprise that investors are starting to consider the picture in terms of alternatives, the picture in terms of how can I really diversify? You know, again, it speaks to your performance of gold, for example, but that's not the only alternative. There may be sources of nontraditional returns where it's not just about equity growth that play a more important part in portfolios than they used to.

Right. Okay. Well, with that in mind, I think we can kind of move on to our next topic, portfolio positioning. We'd love to start now with our viewers' perspectives. We're going to go to another poll question, our final poll question. Where do you see most attractive returns in 2026? So you can cast your vote now. While you're voting, I guess it's important to consider, I would say the backdrop that we've been discussing, you know, moderating inflation, big moves in AI, which can, you know, favor equities. Will 26 be a strong year for fixed income? You know, how might corporate bond supply or, you know, central bank policy impact that? Private markets, structural forces from tech to defense spending, could that drive opportunity?

And then you've got commodities like gold and silver even, which we haven't even spoken about, but continue to have incredible performance. Will that continue? You know, so yesterday actually gold reached an all-time high, but can it keep going? So your perspective will be interesting to see where we got to. I think we'll go ahead and have a look at the results.

Okay, there you go. Global equities at 53%, second commodities 26%. That, you know, I've seen a lot of polls out there and a lot of them tend to have this sort of broad tilt toward global equities.

um so senal i suppose does that surprise you yes or no uh not hugely uh i think um if you have a fairly constructive fundamental backdrop in terms of uh earnings and the noise perhaps i should say the news kind of dies down to the extent that people can just focus on the fundamentals there's no reason that shouldn't be the case i think obviously there is a question mark about valuations in the equity market i think we would probably see it as it limits the upside as in I don't think you expect to see a lot of re-rating. I mean, even historically cheaper markets like Europe, for example, valuations are now in line with average or slightly above.

So I don't think we'll see a lot of re-rating, but earnings can deliver. So on that topic.

Yeah, I would just say likewise. Yeah.

With growth picking up and central banks near the end of their cutting cycles it not surprising because income was on the bottom of that list Yeah yeah yeah Oh great Thank you Now taking all of that into account you know we want to have a look at our current view on equities, and we've got government bonds here up on the screen. Do you want to just talk us through briefly our positioning?

Yeah, I mean, I hope there's no surprises, really, bearing in mind what we've been talking about, but sometimes it's useful to see it all in one place. And that's very much how we try and think about portfolios. And really, that concept of diversifying where the engines of growth may come from, I do think makes sense. It gives you exposure to different sources of regional demand, different industry and sector compositions. You don't need to bet everything on the Magnificent Seven these days. So, I think that's really important. But then when it comes to the fixed income side, there are challenges from the fundamentals. We know that government bonds, for example, perform an important role in portfolios.

There are some economic scenarios where only the bonds will work. But it may pay to be more selective. And again, we've talked about perhaps a slightly stronger investment case for the UK and Australia versus Europe and Japan. The area that we're not talking about here, but worth a mention, is where we're seeing credit. Now, in principle, if you think about that balance between decent corporate fundamentals, but maybe some questions and challenges on the rate side, I think on balance, we probably feel that the, if you like, the unbounded upside in theory, at least, that comes from the equity market is quite attractive right now. So, we'd potentially rather take our corporate risk there than in the mainstream, let's say, investment grade high yield markets, where obviously spreads are historically pretty tight.

The one exception to that, I think, is the emerging market. So, emerging market fixed income does look quite attractive to us, especially if you factor and the potential for the currency gain as well.

Okay. Well, it's good to see. We're good to hear your perspective. I wanted to also add that there is a more detailed view of our current positioning within the full house view document. So if you download it or have a look at it, you'll be able to see more details there. Thanks, Anil. Alice, I guess, what about your views when it comes to private market assets? We've talked a little bit about it, but are there particular asset classes that you like for 2026?

Yeah, I think there definitely are. I think we see that there's real positive momentum building in real assets. And so by real assets, I'm talking about real estate and infrastructure that each bring quite different opportunities. So infrastructure, probably the same for you, we've talked about infrastructure quite a few times today. And so there's really strong fundamentals in the asset class.

I think over the last few years, it's really proved its resilience during times of instability. It's defensive by nature as an asset class. It has often long-term contractual, sometimes inflation-linked cash flows. And there's strong alignment with the global megatrends we talked about today, alongside fiscal support coming through as a tailwind too. So there's some really strong positioning in infrastructure. I think investors are already in tune to this, as we saw at the start, with investment flows for this year or last year.

So that's a really strong outlook, we feel, for 2026. Real estate has had a more challenging few years, I would say, but there's strong indicators that we are entering a new real estate cycle in the European market. So the asset class has repriced. There's strong fundamentals of demand and supply in check across a number of markets, sectors, geographies in Europe.

And leverage or the cost of debt is really becoming accretive to bolster returns too. So we're really positive on the entry cycle for the European real estate equity market. I don't want to leave out private debt just as an asset class. So in an elevated rate environment, private debt still provides investors with kind of strong risk adjusted returns. But given the investment volumes over the last few years have been kind of more muted on the equity side, alongside that compression to private debt returns, we're really positive to see increases in equities coming through in 2026.

Okay, great. Well, thank you. We do have a few minutes now that we can start taking some audience questions.

Getting a lot of questions here around a weaker U. S. dollar. What are our views? I don't know if you want to take that, David.

Sure, I can start. We'll have other views. So we reviewed last year that there was a very weak start to the dollar. A little surprising given the tariffs, which are supposed to strengthen the dollar, and they did in 2018. But they really compromised the way that the rest of the world, which was heavily overweight U. S. assets, kind of looked at the U. S. We expect that to continue somewhat throughout the year.

Fed independence and pressure on the Fed to cut rates is another factor. We're a little bit less sure later in the year. If U. S. growth does pick up and the Fed stops cutting, that might be at least temporarily dollar supportive. But the U. S. remains very overvalued. And again, exposures and flows don't seem as supportive.

Okay. Any thoughts?

Well, I just think from the asset allocated perspective. So as David said, many asset owners around the world will be looking at their portfolios. And with good reason, they have very significant exposures to U. S. assets. Now, suppose that you want to risk manage those. You can't necessarily say, well, it's time to start edging out of the buildings that we own because they need to find buyers and so on. That's a slow process.

Managing your FX exposure is a step that can be taken. So looking at hedge ratios, for example. And in some ways, I think that's a more accessible route for a lot of investors to just at the margin start to rebalance their exposures. And I think that's one of the reasons we see currency market is the potential release valve.

Okay, great. I have a question here on China. We haven't spoken about China really specifically. Becoming increasingly competitive in higher value sectors such as EV, semiconductors, for example. Any thoughts on China? Anyone want to start on that? Any?

I'll go again. Some people are referring what's happening right now. they refer to as a second China shock. The first one was when they entered the WTO in subsequent years, ramped up their exports. Now it's really their growth model broke down in part because of the real estate collapse and depression there. And they've heavily invested first in infrastructure and then in industrial output.

But consumer demand and consumer sentiment in China continues to be weak because of that real estate backdrop. So they're increasing capacity and output too much and they need to export their way out of it. And so that is becoming a pretty big problem for Germany, for Sweden, for others that compete with them in the EV space, for example. The U. S. is shutting those out. So that creates even more of a surplus.

So that's a disinflationary shock to Europe perhaps more than others. On the other hand, it looks like China's growth is doing a little bit better. That seems to be supportive for commodities again. And that's part of this resource.

Yeah, exactly. Okay, time for maybe one more question. Let's see, we've got one. Alice, a lot of money flowing into private credit. Where do we think returns would get squeezed?

Yeah, so there definitely is. If we think about private credit, one of the metrics we often look at is kind of the yield pickup or the illiquidity premium, which is essentially looking at the premium over kind of a public markets debt product that investors typically are rewarded for investing in a less liquid investment. So, with more capital flowing into the asset class, us, there's definitely undoubtedly going to be pressure on that illiquidity premium. But I think it's really important to consider that you don't have a consistent uniform illiquidity premium across private debt. So we have got a broad data set on the illiquidity premium that we've been recording for many years and looking at some of these historical trends.

When we're looking at the illiquidity premium and pricing, we can see that real estate debt, infrastructure debt, private corporate debt and asset-backed lending, they all move at different speeds in terms of that repricing. So, I'd say when we're thinking about positioning for 2026 in private debt, we would recommend kind of a multi-asset approach. And that allows portfolio strategy to adapt to any changes in pricing or illiquidity to premium as a result of market events and just position for the current market cycle.

Great. Thank you. Let's have a look at our key takeaways from today. So we're going to need to sum up. David, how would you summarize the economic outlook for 2026 in a sentence?

Yeah, so it's constructive, not all guns blazing, but positive. Like we said, global growth has several supports and tailwinds from fiscal to the AI boom, and then rising defense and resource spending. And yeah, the disinflation, And on the other hand, that we saw the last few years leading to rate cuts and giving a positive backdrop, particularly to fixed income and credit, that's coming to an end.

Okay. Sunil, I'm going to ask you the same sum up, I guess, market outlook.

Hopefully people will have heard a reasonably upbeat message in terms of the potential for risk assets to continue to earn. As I say, I think it will be perhaps more earnings driven than re-ratings driven this year. but we don't see valuations as a real significant risk factor in that regard. I think as we maybe move down the risk spectrum towards credit, it becomes a little bit more challenging just in terms of where spreads are starting from. It doesn't mean that you can't continue to clip a coupon, but I think perhaps the balance of risks around that is that you might do slightly worse than that. And then I think there will be more scope for more focused investing.

We talked a little bit about that in context of fixed income, regional exposure. And then I think another example would be the different themes around AI, some of which you've heard about from me, some of which you've heard about from Alice as well.

Okay, great. Thank you. We are at time. Thank you all for your insight today and for the discussion. It's been great. It will be absolutely fascinating to see what the year ahead holds.

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