Markets calm despite rising global tensions
According to Dennis, 2025 belonged to the AI trade, but 2026 is shaping up to be defined by geopolitics. From the risk of an escalation involving Iran, China-Taiwan tensions, uncertainty around US actions in Latin America, to the ongoing Russia-Ukraine war, the list of global flashpoints is long. Yet, markets have remained relatively calm so far.
Oil prices have firmed up, largely due to concerns around Iran’s oil exports and the recognition that reviving Venezuelan supply will take significant time and capital. Despite this, risk assets have not seen panic-driven sell-offs.
Emerging markets defy the strong dollar
What stands out, Dennis notes, is the resilience of emerging markets. Even with the dollar index (DXY) up around 1% year-to-date, EM equities are up nearly 5%, an unusual divergence given the traditional inverse relationship between a strong dollar and EM performance.
He attributes this to sustained capital inflows into emerging markets since late 2025, a trend that has continued into 2026. “Emerging markets remain the flavour of the year,” Dennis said, adding that this momentum could persist for some time.
Japan, Yen weakness and global capital flows
Japan is another critical variable shaping global money flows. Expectations of fiscal expansion, geopolitical tensions in the region, and political uncertainty around elections have weakened the yen. A softer yen, Dennis explained, is supportive for Japanese equities, helping local markets rally despite broader global uncertainty.
Fed likely to cut rates only twice
On US monetary policy, Dennis expects a cautious Federal Reserve. Despite recent inflation readings coming in slightly below expectations, wage pressures remain and inflation is still above the Fed’s target.His base case is two rate cuts in 2026, totalling 50 basis points, potentially starting as early as January. However, he ruled out aggressive easing, stressing that the Fed will prioritise credibility and independence amid political pressure and high fiscal deficits.
“The Fed will move slowly,” Dennis said, warning that excessive rate cuts could revive bond market stress if investors lose confidence in inflation control.
Outlook: Caution, not panic
Overall, Dennis believes the US economy remains stable in 2026, allowing the Fed to ease modestly while global investors continue to find value in emerging markets. While geopolitical risks are rising, markets appear willing, for now, to look past the noise—making 2026 a year of selective opportunity rather than broad-based fear.