The most attractive investment opportunities of 2026 are likely to be in areas such as 'nimble' bonds, emerging markets and quality stocks, according to strategists at Hargreaves Lansdown.
Emma Wall, chief investment strategist at the firm, described the outlook for 2026 as “mixed” but noted that markets worldwide had delivered robust gains in 2025. But as part of this, US equities and tech stocks have reached “historically very high valuations”, thanks to extraordinary returns from artificial intelligence (AI) companies.
“These [AI] companies are ‘priced for perfection’ – forecasts that are perpetually beat, competitive spending that only increases. There is significant scope for productivity enhancements across all sectors and AI will be additive to GDP, but it is unclear whether current valuations flow through to benefits seamlessly,” Wall said.
“While we think there are some star players within the sector that will be crucial to charging global growth, there is risk that the wider sector is overvalued. If sentiment shifts – whether for macro reasons or company-specific concerns emerge, all companies – even those with strong fundamentals – will be impacted.”
Heading into the new year, the US economic picture is complicated by several conflicting forces, Wall said. Employment data has shown signs of deterioration, raising questions about the economy’s momentum, while president Donald Trump is pushing for stronger performance ahead of the mid-term elections.
Trump has floated the possibility of distributing “tariff cheques” to Americans, similar to the pandemic-era stimulus payments that had supported economic growth. His so-called One Big Beautiful Bill would also introduce tax cuts and increased government expenditure into an economy where the national debt has already reached unprecedented levels.
“If you pump too much stimulus into the system, and stoke too much demand, inflation will re-ignite. This in turn could mean the Fed is forced back into a hiking cycle, which equity markets will not like,” Wall said. “It is a difficult balance to get right – and it will create volatility in the bond market, which in turn creates opportunities for the tactical investor.”
In the UK, Wall noted that inflation was forecast to reach 2.5% in 2026, up from earlier expectations of 2.1%, driven by higher wages and service costs, though this still represented a downward trend that should allow interest rates to decline gradually through the year.
With this in mind, the Hargreaves Lansdown chief investment strategist gave three areas that investors might want to consider in 2026.
‘Nimble’ bonds
Bond markets present opportunities for both income and capital appreciation as yields decline in a rate-cutting environment, Wall said. Market volatility throughout 2026 would create openings for investors who adopted an active approach to fixed income.
“Pick fund managers with a proven track record trading across the market, as changing rhetoric through the year is likely to create opportunities,” she explained. “Actively managed funds can take advantage of the market volatility and we think the potential for opportunity here outweighs the additional cost of an active approach.”
Investors should seek bond funds capable of investing across government and corporate bonds in multiple geographies in order to benefit from increased diversification.
Emerging market equities
Emerging markets are another potential area of opportunity, shaped by evolving trade relationships as developing economies shifted away from US supply chains towards intra-Asian and inter-emerging commerce.
“Valuations are attractive on a relative basis and emerging markets offer some much-needed diversification alongside the crowded US mega-cap trade,” Wall said.
Hargreaves Lansdown singled out India as a market that could strengthen following weakness in 2025 while the broader emerging market space stands to benefit from further weakness in the dollar.
Quality stocks
The quality investment style, which focuses on companies with dependable cash flows and minimal debt, has fallen out of favour in recent years as high-growth technology firms and value-oriented companies dominated returns.
These businesses, typically found in sectors such as utilities, consumer staples, healthcare and industrials, possess characteristics that allow them to perform well regardless of broader economic conditions. However, the prolonged underperformance of quality stocks has created a potential entry point for investors seeking to rebalance their portfolios, Wall said.
“We think this has created a potential buying opportunity to rebalance portfolios and should markets take a down-leg, these companies are likely to hold up better,” Wall finished.