Global equities: Global value offers a more balanced opportunity set in 2026

This wire was written by Grace Su and Jean Yu of ClearBridge Investments.

After navigating one of the most unusual market environments in recent memory, we enter 2026 with a more balanced and ultimately more investable global equity backdrop. The resilience of 2025 – despite a turbulent first quarter – is unusual and underscores the importance of building a differentiated, high-conviction portfolio, maintaining valuation discipline, and reacting opportunistically during large swings in market sentiment.

2025: A broadening, but volatile, rally

The year began under a cloud of uncertainty, with markets unsettled by proposed U.S. tariff policies and fears of renewed trade friction. However, sentiment improved as tariff implementation was delayed, trade agreements materialised, and U.S.–China tensions eased, alleviating fears of severe supply-chain disruption.

U.S. equities rebounded strongly from initial shocks, driven by solid earnings, a Fed rate cut, and surging AI-related capital spending, accounting for nearly 50% of U.S. GDP growth. Emerging markets delivered notable strength, with China, Mexico and Brazil leading gains on the back of a weaker U.S. dollar and accelerating AI infrastructure investment across Asia. Developed markets joined the rally: Japan benefited from reflation and policy clarity, while Europe saw confidence rise amid large infrastructure and defence commitments.

These gains were largely multiple-driven, underscoring how short-term sentiment can dramatically swing markets. This reinforces the core principle of our strategy: maintaining a long-term, high-conviction approach and valuation discipline, rather than chasing transient factor trends. In a year where everything seemed to work, this discipline mattered more than ever.

2026: A more balanced backdrop

We enter 2026 with a more stable macro environment than this time last year. Inflation has moderated globally, giving central banks room to ease, while fiscal programs - from U.S. industrial and infrastructure spending to expanded European budgets and targeted Chinese stimulus - continue to support activity. With the effective U.S. tariff rate already having peaked, companies that absorbed tariff-related cost pressures in 2025 should lap those headwinds, creating modest tailwinds for growth.

Several themes are likely to shape markets in 2026:

Monetary easing should broaden growth. Lower rates should support a recovery in manufacturing and small-business activity, while also benefiting rate-sensitive sectors such as housing, utilities, and infrastructure. Europe and Japan remain well-positioned given ongoing pro-growth policies.

Leadership expands beyond mega-cap AI. While AI remains foundational, power, logistics and efficiency improvements are becoming equally important investment themes. Companies that enable the next phase of the AI cycle - rather than those solely capturing its front-end demand - are increasingly well-positioned.

Emerging markets retain meaningful value. Although outside our benchmark, EM remains one of the more attractively valued areas globally, trading at roughly a 40% discount to the U.S. Disinflation offers monetary flexibility; countries like Brazil and Mexico are on firmer fiscal footing, and easing dollar liquidity should support flows, creating more fertile ground for potential alpha generation.

The U.K. looks increasingly compelling. Attractive valuations, improving inflation dynamics, and falling Gilt yields have created a supportive backdrop - particularly for its concentration of service-oriented industries that should benefit from AI and are spared from tariff headwinds and the threat of excess Chinese export capacity.

M&A could provide an additional tailwind. Deregulation, strategic repositioning, and the prospect of lower interest rates may support a global uptick in M&A. Companies will likely act more decisively in an environment with reduced policy uncertainty.

Identifying the next wave of improvers

The ClearBridge Global Value Improvers Strategy focuses on identifying and investing in undervalued companies in which operational, financial, or sustainability-related improvements are not yet fully recognised by the market. These improvers often exhibit durable margin expansion, strengthening governance or accelerating cash-flow generation - characteristics that can drive sustained value creation and persist through macro noise.

Energy transition and efficiency remain high-conviction themes
Rising electricity demand from AI, electrification and infrastructure investment favours companies involved in grid modernisation, storage and efficiency solutions. A more constructive outlook toward renewables is also improving the opportunity set.

A compelling example of this is the new portfolio addition, Brookfield Renewable Partners (NYSE: BEPC), the renewable energy arm of Brookfield Asset Management, which benefits from its parent’s scale, development expertise, and funding. AI-driven data-centre growth is supporting stronger recontracting dynamics and longer-term visibility. Additionally, its stake in Westinghouse provides exposure to the global nuclear buildout, offering further potential upside.

Positioning for a broader market regime

With a more balanced macro backdrop, healthier geographic diversification, and an expanding set of fundamental catalysts, 2026 presents a more attractive opportunity than the narrowly led markets of recent years. The companies best positioned from here are those driving meaningful internal financial, operational and sustainability-related improvements that can support long-duration value creation.

Risks such as a softer U.S. labour market, uneven AI returns, or renewed fiscal concerns remain part of the backdrop but highlight the necessity for geographic diversification and disciplined bottom-up analysis - key components of our portfolio construction processes.

Please note, this wire is part of Livewire's Ultimate Investing Guide for 2026. The full guide is available for download here.