House View Q2 2026 Webcast
Discover the key themes we expect to shape global markets in coming months – including how resilient growth is now being challenged by geopolitics, inflationary pressures, economic fragmentation and market rotation.
The big picture
Seeing through the fog: shifting growth and inflation risks.
The conflict in the Middle East and the resulting surge in oil and gas prices has resulted in a fog descending over the global economy. Near-term inflation risks have risen while the outlook for economic growth is more subdued in the second quarter and the remainder of 2026.
In our central scenario, oil prices will be around 30 per cent higher and European natural gas prices around 60 per cent higher than previously expected, boosting headline inflation by around one to two percentage points, depending on the country, with the Euro Area and the UK more impacted.
As a result, we expect global growth in 2026 to slow modestly to about 2.75 per cent, with the largest impacts felt in energy-importing regions and countries such as the euro zone, UK, Japan, China and India.
Central banks may initially look through the shock, but the risk of persistent inflation could delay or even halt expected policy easing. We now expect rate hikes from the ECB, and in an adverse high oil-price scenario, see the possibility of rate rises from the BoE and Fed as well.
Figure 1: Scenarios for Brent crude oil prices (USD)
Source: Aviva Investors, Macrobond as at 20 March 2026.
What this means for asset allocation
Equities
Despite heightened geopolitical uncertainty resulting from the conflict, the outlook for equities remains broadly positive, albeit somewhat less than previously. Markets have so far reacted only modestly, with share prices underpinned by solid corporate earnings.
Our preferred regions are the US, Japan and emerging markets, where growth prospects remain relatively resilient. Europe appears less attractive by comparison.
Figure 2: Tactical Asset Allocation View - Equities
Note: The weights in the asset allocation table only apply to a model portfolio without mandate constraints. Our House View asset allocation provides a comprehensive and forward-looking framework for discussion among the investment teams.
For illustrative purposes only.
Source: Aviva Investors as at 20 March 2026.
Government bonds
The energy-price shock creates mixed forces for government bonds. Higher inflation typically drives yields upward, while weaker growth supports demand for safer assets. These offsetting dynamics lead to a neutral stance on duration overall. However, there is an expectation that yield curves could steepen as investors factor in longer-term fiscal pressures.
Figure 3: Tactical Asset Allocation View – Government bonds
Note: The weights in the asset allocation table only apply to a model portfolio without mandate constraints. Our House View asset allocation provides a comprehensive and forward-looking framework for discussion among the investment teams.
For illustrative purposes only.
Source: Aviva Investors as at 20 March 2026.
Credit
The outlook for corporate bonds is less favourable. Credit spreads remain relatively tight despite increased uncertainty, meaning investors are not being sufficiently compensated for rising risks. With both duration risk and spread risk elevated, the risk-reward balance looks unattractive. As a result, the preferred positioning is underweight corporate bonds, particularly in lower-quality market segments.
Figure 4: Tactical Asset Allocation View – Credit
Note: The weights in the asset allocation table only apply to a model portfolio without mandate constraints. Our House View asset allocation provides a comprehensive and forward-looking framework for discussion among the investment teams.
For illustrative purposes only.
Source: Aviva Investors as at 20 March 2026.
Four key investment themes
1. Resilient growth challenged
Entering 2026, we had expected economic growth to strengthen modestly as lower interest rates supported housing and investment, aided further by accelerated spending on AI infrastructure and fiscal stimulus.
Yet this resilient backdrop now faces tests: tariffs, protectionism, fragmented supply chains, political risks and labour strains. Financial markets remain vulnerable given tight credit spreads and high equity valuations, especially given geopolitical tensions and the threat of higher oil prices. Overall, our expectation of a global growth revival is delayed until 2027.
Figure 5: Improved growth forecasts have not yet reflected an energy disruption
Source: Aviva Investors, Bloomberg, Macrobond as at 20 March 2026.
2. Inflation pressures re-emerging
Inflation was easing toward central banks’ two per cent targets at the start of the year, allowing many G10 policymakers to cut interest rates. However, the conflict has not only driven energy prices higher but raised concerns over chemical and fertilizer supplies. Near-term CPI readings will be higher, and the risk of a more disruptive supply shock can lift overall inflation substantially.
At the same time, the AI boom is increasing demand for semiconductors, power and infrastructure, pushing up some costs. Energy dependency in Europe and Asia, along with higher food and energy weights in emerging-market inflation baskets, amplifies inflation risks in those regions. If energy shocks lift broader price expectations or wages, central banks may delay or limit further rate cuts.
Figure 6: CPI inflation weights for food and energy
Source: IEA, Macrobond, Aviva Investors as at 20 March 2026.
3. Fragmentation in financial markets and economies
The post–Cold War vision of a unified global system has weakened as geopolitical tensions have risen. These tensions are driving selective decoupling of economies and sectors, particularly in technology and strategic resources. The international rules-based order that once supported globalisation and integrated supply chains is eroding, with institutions like the World Trade Organization (WTO) being undermined and broader multilateral cooperation becoming less reliable.
Instead, smaller alliances of like-minded countries are emerging. This fragmentation could lead to higher defence spending, resource nationalism, technology restrictions and duplicated supply chains prioritising security over efficiency. For investors, a less predictable and more regionalised global economy may increase market volatility and reshape capital flows.
Figure 7: Inflation expectations have reacted to the energy disruptions
Source: Aviva Investors, Bloomberg, Macrobond as at 20 March 2026.
4. Market Rotation
Market rotation reflects shifting investor sentiment rather than changes in the number of securities outstanding. The current shift marks a move from narrow, technology-led equity gains toward broader leadership, particularly in cyclical sectors such as industrials and basic resources. These sectors benefit from rising capital expenditure linked to AI infrastructure, energy transition, defence spending and supply-chain security.
While technology sector valuations already reflect strong optimism, cyclical stocks are entering a new earnings cycle after a period of weak profits. A major risk to this rotation would be a prolonged energy shock, which could raise costs and weaken demand. Regionally, the US remains favoured, with continued strength expected in Japan and emerging markets.
Figure 8: Equity market performance has broadened out beyond tech stocks
Source: Aviva Investors, Bloomberg, Macrobond as at 20 March 2026.
Read the House View
House View Q2 2026
The conflict in the Middle East and the resulting surge in oil and gas prices has resulted in a fog descending on the global economy. Near-term inflation risks have risen while the outlook for economic growth is more subdued in the second quarter and the remainder of 2026. Download our latest House View to learn more.
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About the House View
The Aviva Investors House View document is a comprehensive compilation of views and analysis from the major investment teams.
The document is produced quarterly by our investment professionals and is overseen by the Investment Strategy team. We hold a House View Forum biannually at which the main issues and arguments are introduced, discussed and debated. The process by which the House View is constructed is a collaborative one – everyone will be aware of the main themes and key aspects of the outlook. All team members have the right to challenge and all are encouraged to do so. The aim is to ensure that all contributors are fully aware of the thoughts of everyone else and that a broad consensus can be reached across the teams on the main aspects of the report.
The House View document serves two main purposes. First, its preparation provides a comprehensive and forward-looking framework for discussion among the investment teams. Secondly, it allows us to share our thinking and explain the reasons for our economic views and investment decisions to those whom they affect.
Not everyone will agree with all assumptions made and all of the conclusions reached. No-one can predict the future perfectly. But the contents of this report represent the best collective judgement of Aviva Investors on the current and future investment environment.
House View contributors
Michael Grady
Head of Investment Strategy and Chief Economist
David Nowakowski
Senior Strategist, Multi-asset & Macro
Joao Toniato
Head of Global Equity Strategy
Vasileios Gkionakis
Senior Economist and Strategist
Alex Scholefield
Multi-Asset Strategist
David Hedalen
Head of Private Markets Research
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