Chart in Focus

MACRO

GDP growth picking up across Europe

Europe is undergoing one of the most significant economic shifts in modern history, moving beyond austerity towards a more proactive strategy grounded in investment, industrial renewal and enhanced security. 

Recent structural reforms and fiscal stimulus represent a decisive shift toward resilience and competitiveness. While geopolitical risks persist, the policy mix of EU-wide initiatives and national programmes, anchored by Germany’s €900 billion to €1 trillion fiscal pivot, create a robust foundation for growth. 

For investors, the implications are clear: sectors aligned with infrastructure, energy transition, defence, and industrial modernisation offer attractive opportunities over the medium to long term.

MACRO

Weaker dollar, stronger euro for 2026?

Structural tailwinds that have supported the US dollar over recent years are fading, arguing for a more bearish view on the greenback heading into 2026, according to Capital Group currency analyst Jens Sondergaard.

During its latest bull run, the dollar has benefitted from domestic growth in the US, higher real interest rates relative to peers and ongoing appetite for American assets. But with global growth now converging, and the Federal Reserve starting to cut rates as the European Central Bank hikes, these shifts could signal a tactical window of USD weakness, especially versus the euro and the yen.

While the cyclical bull run for the dollar may be nearing an end, however, its structural dominance in the global financial system remains firmly intact. 

It continues to serve three roles in the global financial system: as the leading currency for international trade and cross-border capital flows, the dominant component of official reserves, and the private sector’s preferred store of value during periods of stress. 

Thus, while a tactical, possible extended cyclical decline in the dollar is possible, the scale of the US economy and its financial markets should continue to support the currency’s leading position.

FIXED INCOME

How could higher oil prices affect emerging markets?

With oil prices volatile in the wake of events in the Middle East, how could a prolonged period of elevated prices affect emerging markets?

Oil price changes mainly matter because they affect how much a country pays for what it imports, how much everyday fuel prices rise, and what central banks decide to do with interest rates. Oil‑importing and oil‑exporting countries feel these effects very differently, which can create opportunities for investors across emerging markets.

• For countries that import most of their oil: Higher oil prices make it more expensive for them to buy energy from abroad. This means they spend more on imports, their trade position worsens, and households feel squeezed because their incomes do not go as far. Prices across the economy rise — first at the fuel pump, and then for transport, goods, and services. If their currency weakens or people doubt the central bank’s ability to control inflation, the impact becomes even stronger.

• For countries that export oil: They tend to benefit when oil prices rise. They earn more from selling oil abroad (assuming they can keep exporting), which improves government finances and strengthens their balance with the rest of the world. Their currencies are more stable, and inflation doesn’t rise as much, even if domestic fuel prices also move with the market.

 
Among major emerging markets (EMs), this divide remains broadly regional. Latin America and the Gulf contain several material exporters, while EM Asia and parts of EMEA are predominantly importers. As shown in the charts, the hard currency emerging market debt universe is fairly mixed, while the major local currency bond issuers are generally net importers of oil.

FIXED INCOME

How sustainable is US debt?

With debt to GDP levels rising around the world, investors are questioning the sustainability of this situation. To be clear, there is no indication a crisis is imminent: the US government has operated with a deficit for much of its existence, for example, and this has not resulted in significant challenges for either the bond market or broader economy. 

That said, increasingly perilous debt dynamics could eventually create problems without some sort of corrective measures. To reverse climbing debt, one of four things (or a blend) is needed: higher inflation, financial repression, austerity or higher growth. 

EQUITY

Commercial airplane backlogs have rebounded

Every two years, the commercial aerospace industry gathers at the Paris Air Show, with the latest tech wizardry on display. We attended the June 2025 event, a good reminder of the secular growth and good management teams this sector possesses.

We believe global aerospace is one of the best-positioned industries for a decade-long cycle of growth, unless a major geopolitical crisis or a deep recession emerges. 
 
Commercial aerospace benefits from a backdrop any industry would covet: strong demand, tight supply, great pricing power and growth visibility over a long cycle. The situation is extra appealing because the aerospace business is essentially an oligopoly: Airbus and Boeing dominate global airplane manufacturing, while the likes of Safran, Rolls-Royce and GE Aerospace command significant market share in aircraft engines and components. 

Amid ongoing concerns about exposure to a concentrated US equity market in technology-oriented stocks, we find commercial aerospace is an attractive investment area that will provide broader global exposure in growth- and dividend-oriented portfolios.

EQUITY

Great global restructuring: AI as a productivity driver  

Throughout history, several technological breakthroughs have emerged to transform industries and substantially raise productivity. The steam engine revolutionised transportation and manufacturing, for example, while electricity transformed industry and households. Moving through time, the internal combustion engine again disrupted transportation, the semiconductor created computers, and the internet has changed every aspect of commercial and personal life. 

One thing these revolutions have in common is that their ultimate impact was drastically underestimated. If you look at the personal computer boom, for example, original assessments of related productivity growth and other economic impacts were far too cautious compared to the gains that eventually materialised. 

A critical question today is whether we are making the same mistake when it comes to artificial intelligence. Whether AI will have a similar impact to these previous breakthroughs is a key part of our latest research on the Great Global Restructuring.

EQUITY

Interest rates versus equity valuations in Japan: Can the ceiling rise? 

Can rising inflation lift the ceiling on Japanese equity valuations?

After several decades, the country appears to be escaping stagnation, which may bring important consequences for investors, including higher interest rates. Perpetually low rates have stopped price/earnings ratios on Japanese companies rising much above 17 times since 2000, compared to a 10-year average nearer 20 times for US equities.

Longer term, it is plausible to imagine Japanese rates rising to 2% or above thanks to higher productivity growth and inflation, opening the possibility of the market P/E climbing to 20-25x. Support for this came with Sanae Takaichi’s election as prime minister, with her expansionary policies expected to encourage demand-driven inflation.