Global equities rise worldwide; Emerging-market profits >60%

A mid-year review of the equity market

As we reach the midpoint of 2026, it is worth asking a simple question: what has actually driven equity markets this year and what does it mean for the second half?

The headline is that global equities have made solid progress, despite high valuations and heightened geopolitical uncertainty. Strong corporate earnings have been the main driver, more than offsetting the fall in valuations across most markets. Emerging-market companies have led the way, with profits expected to grow by more than 60% so far in 2026, while US companies are forecast to deliver around 24%. These are strong numbers, and they help explain why share prices have held up even as the world has felt uncertain.

Unlike the previous three years, the “Magnificent Seven” have not been the stars of the show, returning close to zero in the first half of 2026. The rest of the US market, by contrast, rose around 15%. Investors have grown more cautious about the scale of spending in artificial intelligence (AI) by these giants, and whether the returns will ultimately justify it. Instead, the strongest performers have been the companies further down the AI supply chain. The S&P Global Semiconductor Index more than doubled in the first half, as demand surged for memory and other inputs that power AI infrastructure.

That supply chain is a global one, and AI demand has driven strong gains in markets such as Japan, Korea and Taiwan. Many US smaller companies have benefited too, lifting the Russell 2000 index. This marks a welcome broadening from the narrow leadership of recent years. For active investors, a wider opportunity set makes it easier to add value through careful selection.

Two points, however, call for caution. The first is valuation. Across most major markets, shares are trading near the top of their 20-year range. Expensive markets are not a reason to sell on their own, but they leave less room for disappointment. The second is the risk of “stagflation”, an uncomfortable mix of slow growth and stubborn inflation. This is the one environment where both bonds and equities can struggle at the same time.

So how should investors be positioned in equities for the rest of the year?

The first step is to stay invested. Market declines are normal, not unusual. In a typical year, global equities fall by around 15% at some point yet still tend to finish higher. Selling during moments of fear has usually proved costly.

The second step is to diversify beyond the largest and most crowded names. With profits now growing across more regions and sectors, investors no longer need to rely on a handful of technology giants. Spreading exposure more widely can lower risk while still capturing growth.

The third step is to focus on quality and reasonable value. Companies with strong balance sheets, steady profits and sensible spending plans tend to hold up better when conditions turn difficult. This does not mean abandoning the AI theme, but rather being selective about which companies will truly benefit over the long term. For those worried about slower growth, more defensive areas such as healthcare and consumer staples, along with energy and even gold-related shares, are worth considering.

The first half of 2026 has shown that markets can rise even when the mood is nervous, as long as company profits keep growing. The second half will test whether those profits can hold. The sensible approach is not to predict every turn, but to build a portfolio that can perform in more than one outcome.

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Investment Director, Global Equities, & Head of Sustainability, APAC

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