Equity
Global Equity Compass: Aug 2026
Broadening market leadership as earnings take centre stage
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Global equity markets remained resilient in July, supported by generally positive corporate earnings and continued confidence in the longer-term growth outlook, despite ongoing geopolitical tensions and questions around the sustainability of AI-related spending. While technology and semiconductor companies continued to play an important role in market performance, gains became more widely distributed across sectors and regions, with investors increasingly rewarding companies demonstrating tangible earnings growth and resilient fundamentals. Recent market moves suggest a gradual shift from enthusiasm for AI infrastructure towards a wider range of beneficiaries across sectors and regions.
At the same time, the market backdrop has become more nuanced. Higher energy prices, diverging central-bank policies and continued geopolitical uncertainty have contributed to greater dispersion beneath the surface of headline index returns. Nevertheless, improving market breadth and solid earnings expectations have helped support sentiment, with investors increasingly focused on identifying companies capable of translating technological innovation and economic resilience into sustainable profit growth. The key question now is whether this broadening of market leadership can continue as valuations remain elevated and scrutiny of future earnings prospects increases. |
Global Equity Compass | What to watch
1 AI moving into the real economy
The conversation around artificial intelligence is continuing to evolve. While investment in semiconductors and data-centre infrastructure remains strong, market participants are increasingly focused on the companies using AI to improve productivity, automate processes and strengthen competitive positioning. The next phase of the AI story may be determined less by who builds the technology and more by who deploys it most effectively.
2 Looking beyond the megacaps
Equity market performance is becoming less dependent on a narrow group of market leaders. While growth stocks and AI beneficiaries remain important drivers, investors are increasingly finding opportunities across a wider range of sectors and regions. Companies with solid earnings outlooks, attractive valuations and exposure to domestic investment themes may continue to benefit if market participation broadens further.
3 Infrastructure takes centre stage
Governments around the world continue to prioritise investment in energy, digital networks, defence capabilities and supply chain resilience. What links many of these initiatives is a growing need for infrastructure spending. From electricity grids and power generation to industrial technology and critical resources, the drive for greater economic resilience and autonomy is creating opportunities across a broad range of sectors and industries.
Equity market data1
Source: Allianz Global Investors E&S team, 31 July 2026.
Market review – style lens
- Resilient, higher-quality stocks (Quality) rebounded in July and delivered positive performance. Investors showed renewed interest in companies with strong balance sheets, dependable earnings and defensive characteristics, helping quality-oriented stocks outperform across a range of regions, though to a lesser degree in Europe.
- Attractively valued stocks (Value) also staged a notable recovery in July, making them one of the strongest-performing style factors. Following a period of underperformance, investors increasingly favoured companies trading on more attractive valuations, with value contributing positively across global, US, European and emerging-market equities.
- Stocks that had previously benefited from strong market trends (Momentum) struggled in July and were generally the weakest-performing style factor. After a very strong Q2, trend-following strategies faced profittaking, concerns regarding high capital investment, and a rotation into other styles, resulting in weaker returns across most major regions.
Chart of the month: The S&P 500 or its largest constituent stock?
Source: AllianzGI, as of August 2026.
The chart compares the S&P 500 with a hypothetical strategy2 that invests only in the largest company in the index at any given time. Despite including many of the market’s best-known success stories, the largest-company portfolio significantly underperformed the broader index over the long term. By July 2026, the S&P 500 had outperformed the “largest-company portfolio” by a factor of nearly 12.
The key reason is that today’s market leaders are often yesterday’s winners. By contrast, the broader index also includes hundreds of companies that may become tomorrow’s leaders. An index is more than a collection of successful companies; it illustrates the value of maintaining exposure to emerging opportunities rather than focusing solely on today’s market leaders.
1 The referenced indices/benchmarks are shown for general market comparisons and are not meant to represent any particular fund. An investor cannot directly invest in an index. Moreover, indices do not reflect commissions or fees that may be charged to an investment product based on the index, which may materially affect the performance data presented.
2 Back-testings and hypothetical or simulated performance data have many inherent limitations, only some of which are described as follows:(i) They are designed with the benefit of hindsight, based on historical data, and do not reflect the impact that certain economic and market factors might have had on the decision-making process, if a client’s portfolio had actually been managed. No back-testings, hypothetical or simulated performance can completely account for the impact of financial risk in actual performance.(ii) They do not reflect actual transactions and cannot accurately account for the ability to withstand losses.(iii) The information is based, in part, on hypothetical assumptions made for modelling purposes that may not be realised in the actual management of portfolios. No representation or warranty is made as to the reasonableness of the assumptions made or that all assumptions used in achieving the returns have been stated or fully considered. Assumption changes may have a material impact on the model returns presented. The back-testing of performance differs from actual portfolio performance because the investment strategy may be adjusted at any time, for any reason. Investors should not assume that they will experience a performance similar to the back-testings, hypothetical or simulated performance shown. Material differences between back-testings, hypothetical or simulated performance results and actual results subsequently achieved by any investment strategy are possible.
