The Turning Point?
The World is shifting toward a multipolar system defined by US-China rivalry, regional blocs, and tightening Global Liquidity. This will lead to a more challenging ‘Risk Off’ environment for financial markets in 2026. Our overarching theme is the battle for capital and currency supremacy between the US and China, leading to a World divided into regional spheres of influence. Two major forces will shape asset performance: the peaking US liquidity cycle and the strategic
struggle between the US and China.
Cycle Position: The Global Liquidity cycle peaked in Q3 2025. We are now entering a downswing
Implications: this draining of liquidity from financial markets typically leads to:
• stronger US dollar
• flattening bond yield curves
• higher default risks and wider credit spreads
• investor preferences shift towards ‘safe assets’
Our analysis points to a difficult year for risk assets like equities. It favours defensive assets and questions whether corporate earnings be strong enough to offset the headwinds of tightening
liquidity and geopolitical friction?
Bearish Indicators
• Liquidity Drain: the primary driver of bull markets (new Global Liquidity) is reversing
• Valuation Risk: investor exposure to equities is highly stretched, similar to 2008/09 GFC levels
• Political Cycle: the ‘second year’ of a US Presidential term is historically weak for stock
markets, often featuring sharp P/E multiple contractions even if profits prove good
• AI Capex Caution: massive US investment in AI could be capital-destructive in a bear market
