In many ways, we on the global equity team expect 2026 to be a continuation of 2025. In terms of growth and returns, the United States is no longer the only game in town as it was in the 2010s.
We on the global equity team believe we are now in a new investment regime, one we have dubbed “the revenge of the tangibles,” which embodies a confluence of developments that we on the global equity team expect to continue for the next several years.
A New Global Building Cycle Takes Shape
The global economy has reentered a building phase, expanding AI capabilities, national defense, energy, and other physical infrastructure. This coincides with a shift away from a unipolar world order—long anchored by the United States—to a multipolar order, with China on the ascent and reactions to “America First” leading to increased national and regional supply chains around the globe.
Investment regimes can be long in duration. The previous building regime lasted from the mid-1990s through the mid-2000s, ending right before the global financial crisis (GFC). During this period, fiber optic cable was laid around the Earth’s surface and under the oceans, and mobile telephony technology and infrastructure were updated from voice to digital. In addition, China began to leverage its newfound export economy to build and completely modernize its urban housing stock and infrastructure.
That period of building has given rise to the most recent regime, and the harvesting of that buildout includes the rise of social media, e-commerce platforms, rideshare, and streaming—anything that required or was enabled by the buildout of the internet as we know it today.
Every couple of decades, the world is due for a renewed building cycle, and we on the global equity team believe we are now in the midst of one. AI is being commercialized and could bring meaningful efficiency gains to virtually every type of business. This will require vast numbers of data centers around the world, increased compute power (semiconductors and hardware), and a lot more electricity than our relatively outdated grids can currently produce.
Every couple of decades, the world is due for a renewed building cycle, and we believe we are now in the midst of one.
Localization, Security, and the New Growth Map
Simultaneously, geopolitics have pointed to a broader theme of localization led by the United States. The response from allies and adversaries alike has been a recognized need for domestic or regional supply chains and upgraded national security, which has taken on a “do-it-yourself” mentality and has increased defense investment globally. We on the global equity team believe this response has driven stronger and broader national growth around the world.
Europe
In Europe, investments in national and pan-European physical and digital energy infrastructure have ramped up, as well as the removal of trading barriers within the bloc. Entrepreneurship has also increased; the continent’s highly skilled and increasingly entrepreneurial labor force has been generating more start-ups than the United States in each of the last five years[1].
We believe what is needed, however, is domestically generated financial capital, which the European Commission identified earlier in 2025. Change in Europe tends to be slow, but the continent is undeniably moving toward incentivizing more growth after years of focusing on fiscal austerity.
Germany, the single-largest economy within the euro area, abandoned its decades-old, self-imposed fiscal austerity in favor of investing in national infrastructure and defense. Although the size of the investment is enormous (€500 billion relative to Germany’s €4.5 trillion economy), the infrastructure upgrade is urgently needed. The fiscal multiplier from this spending is likely to be significantly in excess of 1, meaning that for every €1 spent, the returns to the economy will be several times higher.
Much of the government funds in Germany and elsewhere in Europe are increasingly likely to be spent purchasing from domestic producers; “Made in Europe” is now an explicit policy aim across the continent.
The continent’s highly skilled and increasingly entrepreneurial labor force has been generating more start-ups than the United States in each of the last five years.
China and Other Emerging Markets
Today, we view China at either the forefront, or rapidly moving towards the forefront, of virtually every new technology and innovation imaginable, including: AI, nuclear power, humanoid robots, autonomous mobility, and biotech. This comes with a more services-driven domestic consumption as China moves up the gross domestic product (GDP) per-capita scale.
The Chinese government has begun to embrace this evolution, removing impediments protecting local champions and allowing sector and industry consolidation, such that the winners have the ability to earn attractive margins. While we believe housing will likely remain an impediment to consumer spending in 2026, the government is cleaning up its balance sheet, and local government financing vehicles are scheduled to be wound down by June 2027.
For other emerging markets, there are echoes of the previous building cycle, which means supplying more of the commodities necessary to build out AI and physical infrastructure.
Defense
Increased spending on defense is a global phenomenon and has led to the build out—and in many cases, the duplication of—national defense capabilities by using the most modern technologies available.
In addition, military supremacy is no longer about tanks and brawn, but about drones and low-Earth-orbit-enabled satellite connectivity. It is also about autonomous systems, both defensive and offensive, and the ability to leverage leading technology such as AI.
Defense spending and technological evolution is happening across regions in Europe and in the Asia-Pacific (Australia, Japan, South Korea, and China, in particular). This is not to say that the United States and the rest of the Western hemisphere won’t participate in this trend. Indeed, they are, and in many cases, they are still leading.
Changing Regimes Require Focus on Changes in Quality
As quality growth investors, a regime shift and return to tangible assets require an embrace of that dynamic and a focus on the rate of change of improvement along with the overall level of quality and growth.
If an indicator of quality is the return on a business’s invested capital, tangible companies have a larger capital base and could appear less attractive from a quality perspective, driven by the combination of that larger base and a prolonged period of lower growth.
However, investing in equities is all about the rate of change in the improvement. And so, the improvement in quality could be extraordinarily rewarding in terms of generating return, and that growth often leads to additional improvement in quality and the subsequent improvement in the return on invested capital, a combination that can result in attractive returns.
Investing in equities is all about the rate of change in the improvement.
For example, banks in Europe have not earned an attractive return since the GFC. This is, in part, because central banks forced conservative capital allocation policies as a response to the economic damage done.
Now that penance appears to have been paid, banks were among the best performing areas of the market in Europe in 2025. Why? It’s in part because of the changes that banks have been allowed to make to generate a more attractive return. They can now merge with or acquire other banks and buy back stock, helping to produce rates of growth that are much higher than we saw in the previous regime.
Conclusion
In summary, the world is evolving to a new phase of building, and we on the global equity team believe this “revenge of the tangibles” will drive a broadening of growth across industries and regions.
More growth from more places could mean more potential investment opportunities from basically every corner of the globe. This helps support the broadening of returns outside the United States and away from the narrow digital-services-led leadership regime that has dominated since the early 2010s.
As quality growth managers, we on the global equity team are embracing that opportunity, broadening our aperture, and focusing on the rate of change of improvement.
[1]Source: Centre for European Policy Studies .
