New World Invesment Research

As we enter the new year, it is worth outlining the key themes that will be driving the markets and world economy. Since the focus of this research blog is on capital flows, policy dynamics, and global power shifts between emerging markets and the West, the outlook for 2026 will be built through this lens.

1) Commodities.

The past year marked a strong rally across hard assets, with gold, silver, and copper leading the move. Trade protectionism (“Liberation Day” tariffs), the start of a Federal Reserve easing cycle, a weakening US dollar, inflation remaining above target, and heightened geopolitical risks all supported a reallocation of capital toward physical assets. Gold rose roughly 65%, while silver and copper delivered gains of around 140% and 40%, respectively, supported by both macro and supply-demand dynamics. Structural demand has strengthened, particularly for copper, as AI-related investment in data centers, chips, and power infrastructure accelerates. At the same time, supply constraints, ranging from mining disruptions to underinvestment, have tightened the market. Anticipation of potential copper tariffs further encouraged inventory accumulation in the US, pushing copper futures to record or near-record levels on the LME.

Looking ahead to 2026, a weaker dollar, a new Federal Reserve chair expected to continue rate cuts, AI-driven demand growth, and persistent supply constraints are likely to remain key tailwinds for precious and industrial metals.

2) Emerging Markets.

Stocks and indices in emerging markets were another stellar performers of the past year. MSCI EM delivered a 34% return and is expected to continue the bullish cycle in 2026. Historically, EMs tend to perform well when DXY weakens and vice versa. Moreover, EMs usually rally together with hard assets, which provides another support for the bullish case in 2026. Many investment banks and analysts expressed their concerns over AI bubbles and the high exposure of the US market to it. Although also being exposed to the AI story, EM might act as a source of diversification for investors. Non-US stocks were underweighted for a long time by asset managers across the world, and it doesn’t make any more sense now to be overweight in US assets. Yardeni Research noted that non-U.S. equities remain more attractively valued on a forward price-to-earnings basis, while corporate earnings worldwide have shown notable resilience.

EM equity performance is highly sensitive to the direction and persistence of USD cycles. When the dollar weakens on a 12-month basis, EM returns tend to be strong and convex. When the dollar strengthens, EM underperforms sharply. This relationship weakens only during global liquidity shocks, when capital preservation dominates macro fundamentals.

EM equity performance is tightly linked to the global industrial cycle. Sustained upswings in industrial metals, a proxy for real investment and infrastructure demand, are typically associated with strong 12-month returns in emerging market equities. Periods of EM underperformance tend to coincide with metals downcycles or policy-driven disruptions rather than a breakdown of the underlying real-economy linkage.

3) Dollar.

The world’s reserve currency depreciated against other major currencies in 2025.

This was driven by FED rate cuts, “Liberation Day” tariffs, and resilient global growth, which reduced demand for dollar assets. It does not mean that the dollar is no longer dominant. Global investors still put themselves into overweight positions for US equities and provide strong demand for US Treasuries and the dollar. A weaker dollar may also align with the current administration’s economic objectives. By improving export competitiveness and supporting domestic production, dollar depreciation can contribute to a partial rebalancing of growth without undermining financial stability. However, if AI growth sucks capital into the USA, EMs might again be undervalued and overlooked, which would lead to bearish pressures.

4) AI Boom.

Artificial intelligence remained one of the dominant investment themes of 2025, driving a sharp concentration of capital into a narrow segment of US technology equities. Market leadership became increasingly polarized, with a small group of AI-linked firms accounting for a disproportionate share of index returns, earnings growth, and capital inflows. Profit margins for the Magnificent 7 have been revised up over the last year, whereas the opposite has happened in the S&P 493. While this concentration has so far been justified by strong fundamentals, it has also increased the sensitivity of US equity markets to valuation risk and policy shifts.

Looking into 2026, the AI cycle is likely to broaden and globalize rather than collapse. The focus is gradually shifting away from pure model development toward physical implementation: data centers, power infrastructure, semiconductors, cooling systems, and industrial automation. This transition favors capital-intensive investment and links the AI story more closely to the real economy, reinforcing demand for industrial metals, energy, and emerging-market supply chains.

At the same time, concerns around stretched valuations, regulatory intervention, and capital concentration suggest that AI may deliver diminishing marginal returns at the index level. In this environment, global investors may increasingly seek exposure to the second-order beneficiaries of AI adoption, including emerging markets and commodity exporters, rather than remaining concentrated solely in US mega-cap technology.

5) China.

China enters 2026 in a structurally different position from prior global cycles. The economy continues to face weak domestic demand, a fragile property sector, and subdued private-sector confidence. However, policymakers have shown a clear preference for stability over stimulus, prioritizing gradual adjustment rather than aggressive reflation. As a result, China’s growth trajectory is likely to remain moderate but controlled.

From a global perspective, China’s role is evolving. While it is no longer the singular engine of global growth, it remains central to global manufacturing, industrial demand, and commodity consumption. The controlled depreciation of the renminbi in recent years reflects a policy choice to preserve competitiveness without triggering capital flight or financial instability. This suggests that China will continue to operate within a managed macro framework rather than pursue radical policy shifts.

For markets, China’s importance in 2026 lies less in domestic equity performance and more in its influence on global supply chains, industrial demand, and geopolitical alignment. Any stabilization in Chinese growth, even at lower rates, would reinforce the bullish case for industrial commodities and emerging markets, while continued policy discipline reduces the risk of systemic shocks. In this sense, China may act less as a source of volatility and more as a structural anchor within the evolving global economic order.

Themes to watch:

1)     AI Productivity Gains and Profits.

While AI investment dominated headlines recently, 2026 will be more about measurable productivity gains than capital spending alone. Markets will increasingly distinguish between companies that merely deploy AI and those that successfully convert it into higher margins, lower costs, and sustained earnings growth. This shift matters because productivity ultimately determines valuation durability. According to Blackrock, large tech firms will need to grow revenue faster for AI-driven investment to pay off.

At the macro level, widespread AI adoption could help offset labor shortages and demographic pressures in developed economies, supporting trend growth without reigniting inflation. However, productivity gains are likely to be uneven across sectors and geographies, creating dispersion rather than broad-based equity upside. For investors, the key question in 2026 will not be whether AI works, but who captures the profits.

2)    FED Policy.

Federal Reserve policy remains the central anchor for global financial conditions. Following the initial easing cycle, attention in 2026 will shift from the pace of rate cuts to the terminal policy stance and the Fed’s tolerance for inflation remaining above target. Markets will closely watch whether the Fed prioritizes financial stability and growth over strict disinflation, particularly in an election-sensitive environment. A sustained easing bias would reinforce dollar weakness, support risk assets, and ease external financing conditions for emerging markets. Conversely, any resurgence of inflation or tightening of financial conditions could quickly reverse these dynamics. As in past cycles, Fed communication is likely to be a major source of volatility.

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Independent research and commentary for informational purposes only. Not investment advice. Written by Amir Khamidullin, New World Investment Research. Follow for more on amirkh.com.