Global markets are poised to see geopolitical factors take precedence over technology in 2026, according to Geoff Dennis, who spoke to ET Now. While emerging markets (EMs) continue to outperform amidst rising geopolitical tensions and a stronger US dollar, Dennis highlights that the prevailing landscape may shift significantly.
In his assessment, Dennis noted that while 2025 was defined by the AI trade, the coming year is likely to be dominated by a range of geopolitical issues. Risks stemming from potential escalations involving Iran, the ongoing China-Taiwan tensions, uncertainty surrounding U.S. actions in Latin America, and the persistent conflict between Russia and Ukraine present a multitude of challenges. Despite these concerns, markets have displayed an unusual calm, resisting panic-driven sell-offs.
Oil prices have seen a notable increase, largely driven by apprehensions regarding Iran’s oil exports and the acknowledgment that revitalizing Venezuelan supply will require substantial time and investment. However, this has not translated into widespread distress among risk assets, indicating a resilient market sentiment.
What is particularly noteworthy, according to Dennis, is the robustness of emerging markets. Even with the dollar index (DXY) rising approximately 1% year-to-date, EM equities have gained nearly 5%. This divergence is atypical, as a strong dollar usually correlates with underperformance in emerging markets. Dennis attributes this unusual resilience to sustained capital inflows into these markets since late 2025, a trend that has shown no signs of abating into 2026. “Emerging markets remain the flavour of the year,” Dennis remarked, suggesting that this momentum could persist for the foreseeable future.
Japan also plays a crucial role in shaping global capital flows, as expectations of fiscal expansion coupled with geopolitical uncertainties in the region have weakened the yen. Dennis elucidated that a softer yen could provide support for Japanese equities, helping local markets to rally in the face of broader global uncertainties.
Turning to U.S. monetary policy, Dennis anticipates a cautious approach from the Federal Reserve. Despite inflation readings that have been slightly below expectations, ongoing wage pressures and inflation remaining above the Fed’s target suggest that aggressive easing is unlikely. His base case predicts two rate cuts in 2026, totaling 50 basis points, potentially commencing as early as January. However, he emphasized that the Fed will prioritize its credibility and independence amidst political pressures and high fiscal deficits. “The Fed will move slowly,” Dennis stated, cautioning that excessive rate cuts could revive stress in the bond market if investors lose confidence in the central bank’s ability to control inflation.
Overall, Dennis maintains that the U.S. economy is likely to remain stable throughout 2026, allowing the Fed to implement modest easing while global investors continue to identify value in emerging markets. Although geopolitical risks are on the rise, market participants appear willing, for the time being, to overlook these concerns. This sets the stage for 2026 to be characterized by selective opportunities rather than widespread fears.
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