The Investment Outlook: August 2026

Peter Branner
Chief Investment Officer

Introduction to Aberdeen Investments' Q3 Investment Outlook publication. Politics and markets are colliding. Are portfolios prepared?

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 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.

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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.

This quarter in the Investment Outlook you’ll find:

• Paul Diggle makes an urgent case for greater diversification amid geopolitical tensions, fiscal pressures, and concentrated market leadership in our latest House View.
• George Westervelt looks at how income contributes to total returns in the world of high-yield bonds.
• Pruksa Iamthongthong wonders whether investors have overlooked the next phase of growth in Asia.
• Craig Hoyda advises investors to look beyond asset-class labels when striving for portfolio diversification.
• Nathan Hamilton takes a long look at the Fed and asks how a more unpredictable US central bank could affect debt markets.
• Cameron Love, Tettey Addy, and Blair Couper join forces to explain how supply chain disruptions have already led to adaptation and innovation.

As ever, I hope you enjoy these articles.

READ MORE FROM ABERDEEN INVESTMENTS

Important information

UNITED STATES RESIDENTS
The purpose of this website is to provide general information about the US-registered investment advisers which are part of abrdn, and the strategies they manage. The information provided is not intended as an offer or solicitation for the purchase or sale of any financial instrument.

Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.

Diversification does not ensure a profit or protect against a loss in a declining market.

Products investing in infrastructure are subject to the risk of concentrating investments in infrastructure-related companies, which makes them more susceptible to factors adversely affecting issuers within that industry than would a product investing in a more diversified portfolio of securities. These risks include high interest costs in connection with capital construction programs and the costs associated with environmental and other regulations.

Investments where Real Assets are a concentration may be subject to greater risk and volatility than one which invest more broadly. Investments in this sector are subject to the risks associated with investments in real estate securities, commodities and natural resources, among other investments.

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