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Duncan Robertson

Market Outlook

Global SMID-Cap Outlook

Outlook
12 January 2026

By

Portfolio Manager, TT Asia and TT Global-Smid Cap Strategies

Latest Global SMID-Cap economic and market outlook. 


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Even though valuations are less attractive than they have been, we remain positive. Earnings growth remains very strong, and there are signs that GDP growth could strengthen, while inflation continues to moderate. Against this backdrop, central banks appear to have scope to maintain an easing bias. It is unusual to see a bear market without tightening or a recession, and current conditions are not indicative of either. Some have argued that labour market weakness could be a sign of an upcoming recession. However, we believe we are seeing a healthy normalisation from extreme tightness, which should keep a lid on wages. In an environment where earnings momentum remains robust, widespread layoffs also appear unlikely from a corporate behaviour perspective.

Over the quarter we reduced our US underweight slightly. Whilst the market is still expensive, recent underperformance has seen the premium narrow. The US continues to invest heavily in AI and has more flexible labour laws, meaning it is best placed to benefit from AI-related productivity improvements. It has a more pro-business culture, and the Fed has scope to ease in the event of a downturn. However, we will still likely remain underweight as the benchmark is not representative of the global economy, the US fiscal position is more unsustainable, and valuations are still expensive relative to the rest of the world.

Elsewhere, India remains a key overweight. It is a major beneficiary of lower oil prices and has seen positive developments in the form of GST reform, income tax cuts, and dovish monetary policy. Despite this, the premium that India trades at relative to the rest of EM has narrowed.

We also retain exposure to ASEAN, where valuations appear attractive, despite the region benefiting from a weaker dollar and lower oil prices. In our assessment, the region is one of the few places in the world that trades at a discount to historical valuations. We are concentrating our investments in companies that we believe have been unfairly de-rated as the wider market has fallen out of favour.

Finally, we maintain significant exposure to the AI related supply chain. Whilst valuations are not as attractive as they were post liberation day, nor are they overly expensive relative to the growth on offer. We see no evidence of a slowdown in AI datacentre capex, and are reassured that most of the capex is ultimately funded by the key US hyperscalers, which have strong cash flow, net cash balance sheets, and, importantly, are still seeing positive earnings surprises. As long as this is the case, we will aim to retain AI exposure, whilst sticking to our valuation discipline. For the moment, we still feel comfortable.

Important Information:

Nothing in this document constitutes or should be treated as investment advice or an offer to buy or sell any security or other investment. TT is authorised and regulated in the United Kingdom by the Financial Conduct Authority (FCA).

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