Outlook 2026: Take an active approach to valuation risk and seek opportunities to diversify

AS WE HEAD into 2026 there is a lot of concern about equity market valuations.

- JOHANNA KYRKLUND

Comparisons are being drawn with the dotcom bubble of 1999-2000 due to significant investments being made by the hyperscalers into data centres and cloud infrastructure.At the same time many AI startups are loss making, with their valuations being boosted by vendor financing. Against this backdrop we've heard talk about canaries in coal mines, cockroaches (where one emerges there are usually many) and staying at the party for one last dance.

But let’s leave analogies to one side and focus on our options.

Firstly, equity valuations are expensive. They have been more expensive in the past and are not at extremes yet, but you could argue for taking some risk off the table. For example, if you run a mature defined benefit pension plan, you might be able to accept a lower rate of return at this point and bank some profit.

Most investors are not in this camp, however. There are costs to sitting on your hands: inflation needs to be outrun to preserve the value of savings and, with limits on how much one can save, money has to be worked hard to deliver the funds required for retirement and other goals.

You need a plan for the possibility that you could be waiting a long time for a correction and the golden buying opportunity.

The passive option is to stay invested in an equity index.