Insights
MacroeconomicsThe Investment Outlook (Q3 2026) – Introduction
Politics and markets are colliding. Are portfolios prepared?
Author
Peter Branner
Chief Investment Officer
Part of
The Investment OutlookDuration: 4 Mins
Date: 17 Aug 2026
For decades, investors became accustomed to political leaders focusing primarily on politics.
As a result, financial markets were largely driven by the longer-term interaction between economic fundamentals and public policy. Investors could focus on how fiscal and monetary decisions might influence interest rates, inflation and currencies over time, while direct political impacts on individual companies were often limited.
More recently, that relationship has begun to change. The growing interaction between politics and markets is perhaps one of the defining features of the current investment landscape. Political leaders are increasingly exerting a more direct influence on financial markets and, in some cases, on the fortunes of individual companies.
The US is perhaps the most visible example, but it is not alone. In South Korea, for example, strong government support for equity investing, combined with regulatory approval of leveraged single-stock ETFs, helped fuel both a rally and subsequent correction. The effects were felt not only in the domestic market but also across broader emerging market indices, where concentration risk has risen significantly alongside the global technology rally.
From an investment perspective, we remain mindful of the longer-term implications of greater direct policy involvement in markets. Fiscal and monetary policy as well as market intervention can become increasingly difficult to disentangle, creating additional uncertainty for investors. One area investors will be watching closely is the relationship between politics and central bank independence. Changes to Federal Reserve leadership, frameworks, communication practices or balance-sheet strategy could lead to greater uncertainty around the future path of policy.
Consequently, we continue to favour front-end rather than longer-duration US bonds. Fiscal uncertainty, ongoing questions around institutional independence and the continued resilience of economic activity suggest that investors should be careful about assuming a sustained decline in long-term yields. Recent economic data, including firmer survey evidence from the manufacturing sector, points to underlying strength in the US economy and reinforces the need for investors to remain selective across fixed income markets.
While we remain constructive on emerging market equities, investors should also remain alert to the increasing concentration within benchmark indices. This reinforces the case for active management, where portfolio construction can provide access to a broader set of opportunities than is available through market-capitalisation-weighted indices.
Traditionally, investors have responded to elevated political risk by increasing diversification. However, diversification itself has become more challenging in an environment where correlations between equities and bonds can rise at the same time that policy uncertainty is increasing. As a result, building resilient portfolios requires investors to look beyond traditional asset-allocation approaches.
This remains an important part of Aberdeen's investment philosophy. We continue to believe that well-diversified allocations to real assets, including infrastructure, can play a valuable role in long-term portfolios. Such assets can provide sources of return and diversification that are less dependent on the direction of listed markets and may therefore help investors navigate a world characterised by greater political influence, market uncertainty and changing correlations.
In our view, this remains one of the more robust ways to navigate an increasingly uncertain investment environment.
This quarter in the Investment Outlook you’ll find:
Our latest House View: Paul Diggle and the urgent case for greater diversification amid geopolitical tensions, fiscal pressures and concentrated market leadership.
Fixed Income: George Westervelt looks at how income contributes to total returns in the world of high-yield bonds.
Equities: Pruksa Iamthongthong wonders whether investors have overlooked the next phase of growth in Asia.
Multi Asset: Craig Hoyda advises investors to look beyond asset-class labels when striving for portfolio diversification.
Government Bonds: Nathan Hamilton takes a long look at the Fed and asks how a more unpredictable US central bank could affect debt markets.
Thematic: Our economists and fund managers join forces to explain how supply-chain disruptions have already led to adaptation and innovation.
As ever, I hope you enjoy these articles.
More recently, that relationship has begun to change. The growing interaction between politics and markets is perhaps one of the defining features of the current investment landscape. Political leaders are increasingly exerting a more direct influence on financial markets and, in some cases, on the fortunes of individual companies.
The US is perhaps the most visible example, but it is not alone. In South Korea, for example, strong government support for equity investing, combined with regulatory approval of leveraged single-stock ETFs, helped fuel both a rally and subsequent correction. The effects were felt not only in the domestic market but also across broader emerging market indices, where concentration risk has risen significantly alongside the global technology rally.
From an investment perspective, we remain mindful of the longer-term implications of greater direct policy involvement in markets. Fiscal and monetary policy as well as market intervention can become increasingly difficult to disentangle, creating additional uncertainty for investors. One area investors will be watching closely is the relationship between politics and central bank independence. Changes to Federal Reserve leadership, frameworks, communication practices or balance-sheet strategy could lead to greater uncertainty around the future path of policy.
Consequently, we continue to favour front-end rather than longer-duration US bonds. Fiscal uncertainty, ongoing questions around institutional independence and the continued resilience of economic activity suggest that investors should be careful about assuming a sustained decline in long-term yields. Recent economic data, including firmer survey evidence from the manufacturing sector, points to underlying strength in the US economy and reinforces the need for investors to remain selective across fixed income markets.
While we remain constructive on emerging market equities, investors should also remain alert to the increasing concentration within benchmark indices. This reinforces the case for active management, where portfolio construction can provide access to a broader set of opportunities than is available through market-capitalisation-weighted indices.
Traditionally, investors have responded to elevated political risk by increasing diversification. However, diversification itself has become more challenging in an environment where correlations between equities and bonds can rise at the same time that policy uncertainty is increasing. As a result, building resilient portfolios requires investors to look beyond traditional asset-allocation approaches.
This remains an important part of Aberdeen's investment philosophy. We continue to believe that well-diversified allocations to real assets, including infrastructure, can play a valuable role in long-term portfolios. Such assets can provide sources of return and diversification that are less dependent on the direction of listed markets and may therefore help investors navigate a world characterised by greater political influence, market uncertainty and changing correlations.
In our view, this remains one of the more robust ways to navigate an increasingly uncertain investment environment.
This quarter in the Investment Outlook you’ll find:
Our latest House View: Paul Diggle and the urgent case for greater diversification amid geopolitical tensions, fiscal pressures and concentrated market leadership.
Fixed Income: George Westervelt looks at how income contributes to total returns in the world of high-yield bonds.
Equities: Pruksa Iamthongthong wonders whether investors have overlooked the next phase of growth in Asia.
Multi Asset: Craig Hoyda advises investors to look beyond asset-class labels when striving for portfolio diversification.
Government Bonds: Nathan Hamilton takes a long look at the Fed and asks how a more unpredictable US central bank could affect debt markets.
Thematic: Our economists and fund managers join forces to explain how supply-chain disruptions have already led to adaptation and innovation.
As ever, I hope you enjoy these articles.
