The global economy is entering the second half of 2026 in better shape than many headlines suggest. Growth remains resilient and company profits are healthy, yet inflation is still uncomfortable for several central banks and many investments are already priced for good news. 

For investors, the message is clear: opportunities remain, but success is likely to depend more on patience, quality and diversification than on chasing whichever asset has recently performed best. 

The economy is holding up, but inflation remains persistent 

In the United States, retail sales and the services sector remain reasonably strong, financial conditions are easy and corporate profitability is robust. Despite the labour market cooling slightly, the macro environment points to continued economic expansion. 

The complication is inflation. Price pressures have eased considerably from their peaks, but they remain persistent enough to limit how quickly central banks can reduce interest rates. Economic resilience, supportive fiscal policy and renewed energy-price pressures could keep borrowing costs higher for longer.  

Europe presents a mixed but improving picture. Inflation and wage growth have moderated, confidence is recovering and activity appears to be stabilising. The United Kingdom looks softer, with weaker services activity, rising unemployment and slowing wage growth. That may give the Bank of England more room to adopt an accommodative stance. 

What this means for bonds and credit 

When interest rates rise, longer-dated bonds generally fall more sharply than shorter-dated bonds. This sensitivity is known as “duration”. With inflation still a risk, we remain cautious on long-maturity US bonds. European government bonds may offer relatively more attractive opportunities, particularly where high rates are weighing on growth. 

Corporate bonds offer useful income, but the extra yield paid above government bonds, the “credit spread“, is narrow. On average, investors are not being paid generously for taking additional risk. Returns are therefore more likely to come from interest and careful selection of sound borrowers than from a broad rise in bond prices. 

Equities remain attractive, but leadership should broaden 

The main support for global shares is earnings. US companies continue to produce strong profits, while artificial intelligence is driving investment across technology and the wider economy. However, performance has become heavily concentrated in a few very large technology companies, creating significant vulnerability if expectations disappoint. 

There is better value beneath the surface. 185 companies in the S&P 500 trade below 16 times expected earnings. European equities are cheaper overall, at around 15.9 times forward earnings compared with 21.3 times for the S&P 500. Sectors such as healthcare, utilities, infrastructure and selected financial companies may therefore offer useful diversification away from crowded technology trades. 

Emerging markets require similar selectivity. Technology accounted for more than 80% of emerging-market performance, with TSMC, SK Hynix and Samsung alone driving over 60% of returns. China technology remains interesting because of rapid AI adoption and supportive policy, but broad index exposure carries concentration risk and necessitates exposures to weaker sectors such as Real Estate.  

AI: from investment promises to real profits 

The AI debate is changing. Investors are no longer asking only how much the largest cloud-computing companies will spend; they increasingly want evidence that this spending can generate sustainable revenue. 

Capital expenditure by these companies is forecast to exceed about $700 billion in 2026 and $900 billion in 2027. Beneficiaries extend beyond chipmakers to data centres, power, electrical equipment, cooling, transmission networks and cybersecurity. This creates opportunity, but valuations leave little room for disappointment. High-quality businesses that benefit indirectly from AI may offer better value. 

Malta’s outlook remains constructive 

Malta continues to demonstrate economic resilience relative to many larger economies. Following growth of 4.0% in 2025, real GDP is forecast to expand by 3.7% in 2026, supported by consumption and resilient export sectors. Inflation is expected to rise from 2.4% to 2.7%, although government measures should limit the direct effect of higher energy prices. Public debt is forecast at around 46% of GDP and the deficit at 2.2% in 2026. 

Local markets have also shown strength. At the time of writing, the Malta Stock Exchange Equity Total Return Index had gained 16.19% year to date, compared with 1.58% for Maltese corporate bonds and 0.30% for Malta Government Stocks. Government bonds may continue to play an important remain useful for stability and liquidity, while selected local companies continue to offer attractive dividend yields. International diversification nevertheless remains important in a small domestic market. 

Positioning portfolios for the second half 

The investment environment remains supportive, but elevated valuations, persistent inflation and geopolitical uncertainty leave little room for complacency. Investors should therefore build portfolios capable of performing across a range of market conditions, rather than relying heavily on any single theme. This means focusing on high-quality companies with durable earnings, managing interest-rate and credit risk carefully, and diversifying across regions, sectors and asset classes. Periods of volatility are inevitable, but they can also create opportunities. A patient, selective and well-diversified approach may help investors protect capital while remaining positioned to participate in the opportunities that emerge during the second half of 2026. 

Written by

Michael Tabone

Senior Portfolio Manager, ReAPS Asset Management Ltd

Sources: Economic and market data are based on information obtained by the contributor from sources believed to be reliable as at 24th August 2026, including Bloomberg, Central Bank of Malta, Malta Stock Exchange, and other publicly available information. 

The information contained in this article represents the views of the contributor as at the date of publication and is provided solely for information purposes. It should not be interpreted as investment, legal, tax or other professional advice, nor should it be used or considered as an offer, invitation or solicitation to buy, sell or subscribe for any financial instrument. Any forecasts, projections or estimates are based on assumptions and current market conditions and are subject to change without notice. Past performance is not a reliable indicator of future performance. ReAPS Asset Management Limited and/or its clients may hold positions in financial instruments referred to in this publication. ReAPS Asset Management Limited (C77747), with registered address at APS Centre, Tower Street, Birkirkara BKR 4012, is regulated by the Malta Financial Services Authority as a UCITS Management Company and to provide investment services under the Investment Services Act and is registered as an Investment Manager under the Retirement Pensions Act.