Introduction | The Investment Outlook: August 2026

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 the direct impact on individual companies was often limited.

More recently, that relationship has begun to change. In our view, political leaders are increasingly exerting a more direct influence on financial markets and, in some cases, on the fortunes of individual companies. We believe 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.

The growing interaction between politics and markets is perhaps one of the defining features of the current investment landscape. While many economies continue to maintain a relatively clear separation between politics and financial markets, there are increasing signs that this boundary is being tested. As noted, this is most apparent in the US but can also be observed, to varying degrees, across a number of major economies.

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 favor a cautious approach towards 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.

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-capitalization-weighted indices alone.

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 while policy uncertainty is increasing. As a result, we believe 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 characterized 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.

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