Global economic cycle to roll-on for now, Aberdeen says – and that includes AI-driven equities

Aberdeen, the specialist asset manager, has issued its latest quarterly ‘House View’ on the macro-economy and investment outlook. 

The outlook is for continued global economic expansion in 2026 with a pick-up in US growth in particular, a moderation in inflation, and further interest rate cuts. This environment should be positive for asset markets, with AI remaining a central theme and not yet in a bubble. 

Peter Branner, Chief Investment Officer, at Aberdeen Investments said: “As we look to the new year, we believe the global economic cycle will roll-on for now. We expect US growth to pick-up in 2026, inflation to moderate, and the fed funds rate to be cut a few more times. European growth should start to benefit from fiscal loosening too. Growth in China will step down despite the US-China trade détente, and inflation stay very low, but this will keep policy easing. And there are some further rate cuts to come across the broader EM complex. 

All this points to a risk-positive and carry-friendly macro environment for investors. At the same time, the micro drivers of risky assets still look solid, with company earnings strong and the AI theme is still in place despite high valuations in both the US and Chinese market.

As AI-driven equities are getting expensive, our judgment is that investors should consider building further diversification. US technology companies’ rapid share price appreciation has been justified by forward earnings growth. Debt levels for major tech firms remain low relative to their cash generation. And despite worries of cross-investment among leading AI companies, the current environment is characterised by high hardware utilisation rates and broadening real world use cases.

That said, we generally prefer EM to DM assets, where valuations are relatively more attractive. However, we are neutral on the US dollar itself, with pricing of global interest rate differentials broadly fair and threats to US institutional credibility less pressing.” 

Paul Diggle, Chief Economist, at Aberdeen Investments added; “Other risks to the longevity of the economic cycle include a tariff shock, weakness in the US labour market turning into a broader downturn, and threats to the Fed’s credibility. While some of these risks would lead to positive correlation between equities and bonds, we have a positive signal on global government bonds in part as a source of diversification given the pro-cyclicality of the other House View signals. 

Against this backdrop, we have upgraded private credit from neutral to modestly positive and further upgraded the positive signal on global direct real estate. The sector is delivering better performance for investors, providing stable income with some modest capital appreciation. The economic backdrop supports real estate tenant demand, while further rate cuts in the US and UK should support capital values. Meanwhile, supply remains constrained, transaction volumes have risen, and sentiment is recovering.” 

Emerging Markets

Looking to emerging markets, Chinese growth looks set to slow further next year, although not by as much as Aberdeen previously anticipated. 

Aberdeen notes Chinese policy is set to ease further and the anti-involution campaign seems to signal that policy makers have become more concerned about boosting corporate profitability by removing excess capacity and supporting pricing power in key sectors. The Chinese market is set to benefit from the continuation of positive sentiment towards AI. However, Aberdeen points out that as China, and EM assets more generally, become associated with the AI trade, they offer less diversification from any correction in US asset prices.

Among the broader EM complex, inflation has come down substantially toward targets, especially in emerging Asia. Growth has also moderated, but a more stable global trade environment should see this headwind reduce. The EM political calendar becomes busier in 2026, although a general rightward shift especially in Latin America may bring a degree of fiscal consolidation that could reduce borrowing rates.

Emerging Market Equities 

The Aberdeen House View believes this is an environment in which EM equities remain attractive, with valuations still relatively undemanding despite their recent relative outperformance. The earnings outlook remains supported, especially in sectors like semi-conductors. And fading trade uncertainty and solid economic performance across EM markets as a whole should be supportive. Aberdeen highlights market technicals have also improved, with positive inflows into the asset class after years of outflows, indicating renewed investor interest.

Emerging Market Debt 

Aberdeen also believes the same macro fundamentals should support EM debt. The House View isn’t anticipating the same degree of dollar weakness in 2026 as occurred in 2025 and notes the resumption of investor inflows into the asset class, and negative net issuance, are positives. 

The House View likes rotating exposure out of markets where rate cutting cycles are largely complete such as Asia, into Frontier markets where there is scope for further spread compression. 

Private credit

The Aberdeen House View has upgraded its signal on the private credit asset class from neutral to modestly positive. This follows a deep dive into the asset class. Private credit spans a wide range of markets and segments, but is predominately characterised by investment grade non-bank lending through privately negotiation loans. Default rates tend to be low and recovery rates high. Riskier direct lending to leveraged, middle-market companies, is a small fraction of the overall market and a smaller fraction still of Aberdeen’s capabilities.

Aberdeen cites recent high-profile defaults among private credit borrowers as isolated cases rather than evidence of systemic underwriting deterioration. It acknowledges there are legitimate concerns about inflated ratings and the need to monitor “all in” default rates, including amend-and-extend and payment-in-kind events, which can be leading indicators of future stress. Lending to unprofitable technology firms and data centres has also rightly drawn scrutiny Aberdeen says, but Aberdeen does not participate in the former, although does lend to data centres. These deals are structured as Credit Tenant Lease financings where the credit risk is tied to the credit worthiness of the tenant (often highly profitable, investment-grade, mega-cap tech names) rather than the physical asset itself.

Real Estate

This quarter Aberdeen further upgraded its positive signal on global direct real estate. Aberdeen cites the sector is continuing to deliver better performance for investors providing stable income with some modest capital appreciation. The economic backdrop continues to support real estate tenant demand, while further rate cuts in the US and UK should support capital values. Meanwhile, new supply remains constrained as development activity continues to be subdued.

Within global direct real estate apartments, industrials and retail parks are Aberdeen’s preferred sectors. Market sentiment has recovered following shocks earlier in the year, which has seen global transaction volumes rise steadily. All of which gives the House View confidence that the sector will beat cash returns over the investment horizon.

Infrastructure 

Aberdeen retains its positive signal on infrastructure given broader macroeconomic stabilisation should support the market, especially as US interest rates continue to fall.  It notes large cap deals have seen the majority of recent capital raises, which may lead to stretched valuations. So a focus on deal quality remains essential even as global infrastructure “dry powder” is high.

The supportive structural drivers of infrastructure remain in place says Aberdeen. These include debt (stretched public sector balance sheets require a crowding-in of private capital), digitalisation (growth in AI and data exchange is increasing the need for power infrastructure) and decarbonisation (major grid upgrades are required, the move to sustainable transportation supports the build-out of public transport systems, while increasing focus on energy security supports domestic production facilities).