Market Outlook 2026: Geopolitical Risks and Emerging Market Resilience Geopolitical factors are projected to supersede artificial intelligence as the primary driver of global market volatility in 2026. Emerging markets (EMs) have demonstrated unexpected resilience, outperforming broader indices despite a strengthening U.S. dollar and rising energy costs. This decoupling suggests a structural shift in capital flows, positioning EMs as a preferred asset class for the current year. Independent strategist Geoff Dennis highlights that while the "AI trade" dominated 2025, 2026 is increasingly defined by regional flashpoints. Key risks include escalating tensions in the Middle East—specifically impacting Iranian oil exports—and ongoing instability in Eastern Europe and the Taiwan Strait. Despite these pressures, risk assets have avoided significant sell-offs, maintained by sustained capital inflows into developing economies. Monetary policy expectations remain conservative. The Federal Reserve is anticipated to deliver only limited rate cuts, likely totaling 50 basis points across the year. This cautious approach stems from persistent wage pressures and a desire to maintain institutional independence amid fiscal deficits. Consequently, the high-interest-rate environment may persist longer than previously forecasted by optimistic market participants. Emerging markets are expected to remain the "flavour of the year" due to attractive valuations and fundamental reforms. While specific risks persist in Latin America and China, investors are increasingly rotating toward markets with stable macroeconomic profiles, such as India. This trend is bolstered by domestic demand resilience and the maturation of EM institutional frameworks, which have provided a hedge against volatility in developed markets.