iCapital 2026 International Outlook

Elections in major developed nations. Geopolitical tensions remain elevated. Ballooning deficits. These are just a few of the key considerations for the world stage in 2026, creating a complex macro backdrop for international economies. With a world order in the midst of changing, it’s natural to harness the desire to diversify across the globe. With many global investors continuing to be overweight U.S. equities, and the bulk of private market opportunities still weighted toward the U.S., we consider a few ways to navigate regions outside of the U.S., each with its unique challenges and opportunity sets.

Despite the headline risk, we believe 2026 will offer a constructive backdrop across a number of key international economies. However, in concert with the views placed in our U.S. outlook (see our 2026 U.S. Market Outlook), the global macro environment will likely be a balancing act. Regional divergences, policy uncertainty, and persistent geopolitical cross‑currents will continue to shape the distribution of returns and underscore the importance of selective positioning across global markets.

Europe:

Europe enters 2026 with a constructive backdrop. Euro‑area growth is expected to slow modestly from +1.4% in 2025 to +1.2% in 2026, but the outlook remains stable as growth is set to remain above the 1.0% trend.¹ GDP is still projected to expand across the largest economies – Germany, France, and Spain – even if from a softer base.² Europe’s disinflation process also continues to be further along than in many other regions (Exhibit 2). Inflation largely stabilized in 2025 and is now expected to fall below the ECB’s target in 2026. Still, despite undershooting the target, President Lagarde has emphasized that the ECB is in no rush to adjust policy, setting the stage for a steady policy stance with rates likely to remain on hold.³

There are, however, several uncertainties to watch. Tariff risks remain following renewed U.S.-EU tensions in January around President Trump’s desire to acquire Greenland. We expect bouts of tariff uncertainty, with broader trade policy likely weighing on corporate sentiment. In addition, rising manufacturing competition from China and Europe’s heavier exposure to more traditional old‑economy sectors are points to consider.

Even so, momentum on long‑delayed initiatives – such as progress toward the Mercosur trade deal – could help unlock new export opportunities for Euro-area economies. The fiscal impulse may also play a more supportive role as governments increase defense and infrastructure spending.⁴

On balance, Europe’s combination of stabilizing inflation, steady policy, and scope for fiscal expansion provides a foundation for continued positive momentum in 2026, even amid persistent geopolitical and trade‑related risks.

Europe’s investment implications:

Equities: European equities have room to grind higher in 2026, though we expect returns – at the broad index level – to be slightly more muted relative to the U.S. Trade uncertainties are likely to persist and may weigh on market sentiment. Valuations also look somewhat extended—on a five‑year lookback, Europe screens in the 85th percentile.⁵ Unlike in the U.S., it is harder to make the case for a material or sustained re‑rating higher, in part due to the region’s limited base of AI‑focused companies and slower AI investment. That said, there are compelling opportunities in European equities, particularly areas tied to defense spending and fiscal‑driven infrastructure investment, where earnings momentum and policy support remain more favorable.

Private Equity: European private equity enters 2026 with attractive tailwinds: lower valuations and steadier monetary policy relative to the U.S. are creating compelling entry points. However, many European private equity managers have been contending with the modestly slowing growth outlook. The supply chain realignment and government-driven spending in defense, infrastructure, and energy transition are opening durable thematic opportunities even if they are limited in scale due to country-specific regulatory frameworks. At the same time, firms with strong operational capabilities stand to benefit most as geopolitical tensions and trade frictions increase the value of active ownership.

Venture Capital: European venture is showing signs of renewed momentum in 2026, with AI expected to drive over half of VC deal value and early-stage rounds becoming increasingly competitive amid rising valuations, even as the region’s still underbuilt VC ecosystem leaves room for international capital to play a larger scaling role. From an innovation standpoint it is important to note that many European VCs cover Israel, a top market for software innovation in sub-sectors including AI and cybersecurity. Several Israeli-based start-ups have seen successful scale through both public listings and M&A.

Private Credit: There is fertile ground for direct lending when considering a European economy that revolves around middle-sized companies. Certain benefits also exist such as structural inefficiencies in providing financing to this cohort of companies and generally lower valuations relative the U.S. That said, the investable opportunity lags the U.S. by several years in terms of maturity and access, and will still be tied to overall private equity activity. For investors seeking opportunities, asset managers with scale and proven track records can help mitigate risks.

Real Assets: In Europe, renewable adoption is ahead of the U.S. in terms of maturity and investable opportunities. The EU has been at the forefront of moving beyond fossil fuels and investing in renewables, which requires substantial investment, policy cooperation, public and private market funding. There remain consistent pressures to solidify energy security, however, which presents both a risk and opportunity. This includes securing liquefied natural gas imports, reopening nuclear energy as an option, and diversifying supplier partnerships away from Russia.

Japan:

Japan’s growth is projected to ease to +0.8% in 2026 from +1.2% in 2025, though remain steady and above trend (+0.6%).⁶ Domestic demand should continue to support activity while external demand will be a slight drag amid geopolitical tensions with China and ongoing trade‑related frictions, including the potential for renewed U.S.–Japan flare‑ups.

Continued wage growth – expected to run in the low‑3% range⁷ – should keep underlying inflation marginally firm even as headline inflation trends slightly below 2% on a full‑year basis. Fiscal measures from the Takaichi administration are likely to ease headline inflation in 1H26. By 2H26 however, inflation should gradually firm up again, leaving the Bank of Japan in a position where additional rate hikes may be needed to prevent an eventual overshoot of its 2% target. Markets currently expect roughly 50 bps of hikes in 2026, largely back‑half loaded.⁸

Fiscal policy will be the dominant headline in 2026. Japan’s debt‑to‑GDP ratio is already among the world’s highest (Exhibit 3)⁹, and Prime Minister Takaichi’s aggressive fiscal agenda is raising renewed questions about long‑term fiscal soundness. Snap elections in early February serve as a key test of the administration’s policy mandate and may increase fiscal policy uncertainty potentially adding volatility to Japanese long‑term rates.

Meanwhile, the Bank of Japan’s gradual efforts to monetize its ETF holdings may help address fiscal concerns at the margin, but any asset sales would proceed at a very gradual pace to avoid disrupting markets.

Japan’s Investment Implications:

Equities: Last year’s “Takaichi trade” – driven by optimism around the administration’s dovish stance – should persist in 2026 but with less one-way enthusiasm as much has already been priced in. Meanwhile, valuations in Japan now sit toward the upper end of their recent range.¹⁰ To build conviction around further multiple expansion and improving sentiment, the market will likely need to see continued progress on corporate governance reform and sustained improvement in ROE. Recent initiatives from the Tokyo Stock Exchange, Financial Services Agency, and Ministry of Economy, Trade and Industry should help – emphasizing growth investment via M&A and asking companies to clarify plans for excess cash, to name a few.¹¹

Key areas of interest include companies poised to benefit from increased M&A activity and those with strong domestic‑demand exposure supported by an above trend growth backdrop.

Private Equity: Private equity may have a meaningful role in Japan, given the ability to acquire privately-held companies as well as the ability to aid in the meaningful restructuring opportunities for publicly-traded Japanese companies that are engaging in spin-offs and asset sales to streamline often conglomerate-like giants. Demographics can also help as Japan has a relatively older generation which means succession planning can provide an additional opening for private equity opportunities.

Private Credit: While the private debt expansion in Japan has been slow relative to other major developed nations, there is a meaningful opportunity given elevated interest rates. The yield on Japanese instruments may draw investor interest, especially as the U.S. is expected to continue to lower interest rates and investors seek global diversification in fixed income markets. Structures may also change meaningfully to allow for more investor interest, with the largest global GPs building a greater presence in the country with solutions that allow for a degree of liquidity. Japan’s largest lenders are also embracing private credit partners to expand on origination opportunities, providing an additional source of return with perhaps better risk management given local “boots on the ground.”

China

China enters 2026 navigating a delicate balance between domestic stabilization and the need to maintain its global competitiveness. Growth is expected to cool to +4.5% in 2026, easing from +5.0% in 2025, though broadly in line with Beijing’s “around 5%” target for real GDP.¹² The deceleration reflects a moderation in export growth, a property sector expected to remain in decline – albeit at a more gradual pace – and household consumption that remains relatively soft (Exhibit 4).¹³

Policy support should remain targeted and restrained. Fiscal measures – including the recently announced 500‑billion‑yuan guarantee program to support private‑sector borrowing¹⁴ – signal Beijing’s focus on stabilizing key areas without resorting to large‑scale stimulus. Consumption will also remain a priority, consistent with the 15th Five‑Year Plan’s focus on raising the household‑consumption share of GDP.¹⁵ Meanwhile, monetary policy is set to stay moderately accommodative with roughly another 10bps of policy rate cuts expected, which would bolster market confidence.¹⁶

Trade dynamics will remain central as export growth cools. China continues to move goods to global markets despite U.S.-China tensions – supported by stronger shipments to emerging markets and increased routing through neighboring countries to partially circumvent U.S. tariffs. And while the U.S. has taken steps to impose tariffs on transshipments, there effects have been mixed. That said, both sides retain leverage. For China, control over rare earths remains a significant buffer and will likely limit how aggressively other countries escalate trade barriers in 2026. Still, tariff and trade risks remain, though they may weigh more on sentiment than materially disrupt China’s overall export volumes in 2026.

China’s Investment Implications:

Equities: China’s technological ambitions should help provide a floor for equity markets. After a strong 2025, Chinese equities are expected to extend their recovery in 2026. Information technology and advanced manufacturing contributed nearly a quarter of last year’s CSI 300 gains, and both sectors continue to benefit from structural tailwinds. China’s aggressive fiscal support for AI initiatives adds further momentum, building on 2025’s surge in robotics production and rapid adoption of humanoid robots.

However, given ongoing trade uncertainty, we remain cautious on onshore Chinese exposure. With growth expected to slow and exports likely to moderate, we are closely watching for spillover effects across emerging markets and key trading partners – particularly Japan and Taiwan.

Bottom Line:

The international backdrop in 2026 offers a mix of opportunity and complexity. A steady hand will be required as investors navigate policy uncertainty, geopolitical cross‑currents, and regional divergences. For additional investment themes and globally relevant ideas – including private credit, venture capital, and real assets – please see our 2026 U.S. Market Outlook.