This is the abridged version of the article, which can be read in full here.
2025 in review
2025 was a year that had it all – 20% equity market drawdowns, global trade wars, heightened economic policy uncertainty, record AI investments and the bombing of nuclear facilities. Despite the volatility that Trump rhetoric and actions brought to markets – and life in general – the worst fears were pared back, fundamentals shone through and many markets ended the year at record highs. Global economic growth held up well and inflation continues on a downward trend with most Central Banks getting towards the end of their rate cutting cycles.
Policy was the dominant swing factor. The second Trump administration’s rhetoric—on tariffs, immigration, deregulation, and taxes—elevated uncertainty, especially after April’s ‘Liberation Day.’ Markets came to expect the ‘TACO trade’ as the White House repeatedly watered down or delayed the harshest tariff proposals when long rates spiked.
Macro outcomes were mostly better than feared:
- Growth: Advanced-economy projections were cut after April, but actual prints generally finished near start-of-year expectations; emerging markets held up relatively well, helped by the relatively ‘closed’ nature of many emerging market (EM) economies.
- Inflation: Despite policy settings that looked inflationary on paper (tariffs, looser fiscal stance, tighter immigration), CPI upside surprises did not materialise meaningfully in the US or euro area.
- Policy rates: Developed markets (DMs) moved toward the end of their easing cycles; the Fed delivered 175 bps of cuts from September while the BoE also cut materially, and many EMs eased though remaining slightly restrictive versus neutral.
- Yields: Long rates rose on higher term premiums and yield curves steepened globally with concerns over swelling government debt burdens. By year-end the seeming paradox of lower policy rates but higher long bonds reflected exactly this term-premium dynamic.
Our mid-year check-in largely held through H2. The US outgrew peers on the back of high-income spending; Mexico and Canada recovered some of their first-half weakness thanks to USMCA carve-outs; tariff impacts on CPI remained contained; China’s exports outperformed even as its ‘old economy’ slogged; and fiscal and debt worries continued to anchor the bear case for long bonds. AI and data centre capex surprised to the upside, propelling tech-heavy indices and amplifying the ‘K-shaped’ US economy, while geopolitics remained a source of episodic volatility with limited lasting market impact.
2026 themes to watch
AI: bubble risk versus real economy tailwind. Surveys put an ‘AI bubble’ high on the list of tail risks, yet the evidence is nuanced. US tech capex has tripled since 2023 and could approach $500bn in 2026, with six firms—Alphabet, Amazon, Meta, Microsoft, Oracle and NVIDIA—responsible for roughly a quarter of US market capex. Cash-flow coverage among this cohort is tightening, prompting more debt financing, but leverage is not yet outsized relative to the broader corporate bond market. Economically, AI’s biggest near-term contribution is construction-led activity and the wealth effect of rising share prices, however the primary beneficiaries of this remain contained to the upper class. Two watch-outs could flip the narrative from tailwind to headwind: power (availability, affordability, and political optics) and debt (funding models, discipline, and returns).
Trade and tariff uncertainty. Effective tariff rates have climbed toward ~13% from 2.4% pre-Trump, and roughly 70% of US goods imports by value are now affected. While peak fear has passed since April, the structural ‘tax’ on consumers and corporate margins lingers and may bite more fully in 2026, especially if trans-shipment workarounds (eg China-to-Vietnam-to-US routing) are curtailed. The mid-2026 USMCA joint review could tighten rules of origin and redirect flows with significant consequences for supply chains. A pending Supreme Court ruling on the Administration’s tariff authority via IEEPA adds legal uncertainty. Even an adverse ruling may be sidestepped using other statutes, and the incentive to preserve ~$300bn in annual tariff revenue is powerful after the compromises needed to pass the OBBBA.
Bonds, debt, and fiscal stance. In the US, high and rising public debt is keeping term premiums elevated. USD softness remains a risk under persistent policy uncertainty and the ‘TACO trade’ persists insofar as policy threats that push 10-year yields toward ~5% tend to be moderated by the White House. Elsewhere, Germany’s loosening and heavier issuance has steepened bund curves, while Japan and others add targeted stimulus
Geopolitics. The November US midterms are the marquee event. History suggests the sitting President’s party tends to lose House seats, and with a razor-thin majority that raises the probability of divided government. The open question is whether the Administration dampens volatility into November or escalates disruptive proposals. In Europe, the UK and France remain politically and fiscally fragile; Germany’s fiscal expansion supports growth but may be slower to deploy; conflicts from Ukraine to the Middle East remain potential catalysts, and even Greenland has entered the geopolitical conversation.
Our baseline into 2026: solid global growth, sticky CPI in the US, UK and Australia, and long yields anchored high by term premiums. Policy uncertainty, trade rewiring, and geopolitics keep the risk distribution wide, but not decisively bearish.
What this means for infrastructure
The case for global listed infrastructure in a ‘controlled-uncertainty’ world
The asset class offers global, multi-sector diversification across user-pays and regulated assets, enabling active positioning by region and cycle. With growth resilient but uneven, and with rates near neutral after an easing phase, infrastructure’s blend of inflation-linked revenues, contracted cash flows, and regulated return frameworks provides ballast while still offering cyclical upside where domestic demand and policy support are strongest.
North America – navigating policy and power shifts
US rail has felt tariff pressure (with volumes slightly down in tariff-sensitive lanes), but trucking-capacity reductions tied to immigration enforcement could tighten truck pricing and improve rail pricing power.
Midstream names enter 2026 needing to prove the resilience of their growth outlooks in the AI landscape given a lagged ‘drill baby drill’ and disruption from Venezuela-related scenarios (especially for Canadian heavy-oil routes over the longer term).
Utilities are central to the AI-power buildout through 2030, but affordability politics in the US are intensifying, with US states delivering lower bills and stronger demographics and constructive regulators being better positioned. Watch for ongoing offshore-wind friction, including stop-work orders affecting domestic and European developers with US exposure.
We are net constructive on utilities and selective on rails/midstream, with stock picking critical through the midterms.
Europe—selective on user-pays; overweight networks
France’s fiscal scramble has translated into higher corporate and concession taxes for toll roads and airports, warranting caution until legal appeals progress. Spain’s domestically driven growth and Germany’s stimulus should help, though the deployment path may be bumpy. The standout opportunity remains regulated networks, where approved capex plans and funding underpin attractive RAB and earnings growth—especially stocks like SSE and Iberdrola that are positioned for grid upgrades and the energy transition. AI-driven power demand is emerging but more muted than in the US. Nonetheless, networks offer growth with less sensitivity to AI execution risk.
Asia—China differentiation; broader regional thematics
Despite record trade surpluses, China’s property malaise and weak confidence argue for careful name selection and a bias toward companies with clear, consistent shareholder-return frameworks. Gas utilities face cyclical and commodity headwinds and selected transport names look comparatively sturdier heading into 2026. Elsewhere, demographic and middle-class growth, plus utility-led energy transition programs, continue to create durable infrastructure pipelines across the region.
Latin America—rate cycles, valuations, and USMCA risk
Brazil’s aggressive hiking cycle has flipped to easing, a tailwind for rate-sensitive assets, albeit with election-year volatility risk. Valuations remain appealing across transport and especially network-heavy utilities pursuing transformative investment plans. Mexico has navigated tariffs relatively well under USMCA thus far, but July’s review is pivotal. Airport assets offer diversified demand (tourism, VFR and onshoring) and have approved regulatory frameworks, while utilities carry higher political-interference risk.
Portfolio stance
As we enter 2026 we are reminded that ‘the more things change, the more they stay the same’. The main themes and risks from 2025 have carried over into 2026, including high government debt impacting global yields, the AI theme broadening out (as investment plans become funded, power bottlenecks are faced, new regions capitalise on the theme etc), high economic and trade policy uncertainty and the wildcard that is Trump, and a hot geopolitical landscape. Despite this, there is a sense of ‘controlled uncertainty’, where there is sufficient growth to support earnings and investment plans, even if there are more potential policy surprises and variations between regions.
In a world of high term premiums, sticky but moderating inflation, and episodic policy shocks, the preferred tilts are:
- Regulated networks with approved investment roadmaps and constructive regulation (Europe, select US states, Asia and Latam);
- Select user-pays in markets with healthier domestic demand and clearer policy backdrops (eg, Spain, Greece, Latam & parts of Asia), while remaining cautious on jurisdictions with shifting concession or tax regimes (eg, France);
- North American selectivity across rails and midstream, focusing on pricing power, contract coverage, and exposure to AI-adjacent load growth and those utilities with credible transmission/distribution capex, AI support and proactive affordability strategies;
- Selective EM exposure to assets insulated by regulation or long-term concessions and where the macro economic backdrop is supportive.
The content contained in this article represents the opinions of the authors. The authors may hold either long or short positions in securities of various companies discussed in the article. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely as an avenue for the authors to express their personal views on investing and for the entertainment of the reader.