FT: Ruchir Sharma shares the Top 10 trends for 2026. Brilliant.

Key topics:AI-driven US markets overvalued; bubble risks global economic fallout.International markets and emerging economies outperform US in 2025.China, South America, and deregulation trends reshape global markets..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Ruchir Sharma.Last year began with a near universal consensus that the only nation worth investing in was the US. It ended with rival markets outrunning the US by wide margins, generating returns twice as high and making America look much less exceptional.The US did not collapse, of course, because its economy and markets were held up by money rushing into artificial intelligence. The question now is how and when does AI mania end, and what will that mean for the world? Here are my top 10 trends for 2026:AI bubble inflates until money dries upBased on my framework for spotting bubbles, AI now ticks all the boxes to varying degrees; the AI-led US market is overvalued, overinvested, overleveraged and, perhaps most strikingly, over-owned. America is now the only major country in which households hold more wealth in stocks than in property.But bubbles don’t collapse under their own weight. They end when some event leaves people with less money to speculate and invest. For the past century, the popping of every significant bubble from the US in 1929 to Japan in 1989 and China in 2015 has been preceded by central bank tightening.In fact, tightening monetary conditions popped bubbles even before central banks existed in most countries. In 1720 the British mania for South Sea Company stock burst as Dutch banks cut off new loans. During the 19th century a series of railroad bubbles burst in the UK and US amid various forms of tightening, including crackdowns on margin lending and the shift to a gold standard, which limited money supply..Read more:.FT: ‘Of course it’s a bubble’: AI start-up valuations soar in investor frenzy.The AI bubble can stay inflated until liquidity begins to dry up, but that risk is not limited to the Federal Reserve hiking short-term interest rates. If for some reason the Fed loses credibility or capital flows to the US slow, then longer-term rates are likely to surge, and that too could be the pin that pops the AI bubble.Affordability crisis pushes rates higherAlready America’s “affordability crisis” is pushing the price of new homes farther out of reach for young buyers. Groceries are 30 per cent more expensive than five years ago. Nearly a third of low-income Americans spend at least 95 per cent of their income just on daily necessities.Popular anger is building. The Trump administration is feeling the heat and is talking about sending out $2,000 relief checks as the Democrats extend their polling lead ahead of the 2026 midterms. More spending will only make inflation stickier, and the Fed has already missed its 2 per cent target for 55 months in a row. Surprisingly, the US budget deficit narrowed in 2025, aided by hefty tariff revenues. Now, under an administration that has passed new tax cuts and is planning more giveaways, it seems to be heading back above 6 per cent of GDP this year.Other developed markets facing less dramatic debt and deficit issues are facing pushback from the bond market, including France, UK and especially Japan, where the yield on 10-year government bonds rose sharply last year. The US could easily be next in 2026, and it faces potentially greater consequences, since its hyperfinancialised economy relies so heavily on the goodwill of investors.International outperformsThe US has never been more dependent on hot money inflows. In 2025 foreigners poured money into US stocks and bonds at a pace of $1.7tn — enough to finance the entire US current account deficit, and doing more to balance America’s books than at any point since the data began.Should confidence in the US falter, outflows will significantly weaken the dollar. Historically, there has been a strong link between a falling dollar and accelerating returns in international stock markets.A weakening dollar helped the rest of the world outperform the US in 2025, reducing the country’s share of the global stock market index from a high point of 66 per cent at the end of 2024 to 64 per cent now. While “American exceptionalism” may have peaked, this shift has ample room left to run given the still wide disconnect between America’s market cap and its 26 per cent share of the global economy.The comeback in international markets has so far been driven mainly by locals. As global investors recognise the risks in the US, and the opportunities elsewhere, flows to rival markets are likely to pick up in 2026. International markets trade at a steep one-third discount to the US, even as fundamentals are turning in their favour.After lagging behind the US for the last 15 years, corporate earnings growth is now running as strong in international markets, stronger in the emerging ones. Over the past decade, only half of the emerging economies posted faster per capita GDP growth than the US, but that share increased sharply last year and is on pace to hit nearly 90 per cent in the next five years.Quality shinesThe speculative fervour gripping global markets has cast a shadow over quality stocks, a class defined by high return on equity, solid earnings growth and low leverage. With the AI boom fuelling risk-on behaviour — pumping up stocks low on profitability, high on debt and volatility — investors turned away from quality stocks last year.For quality stocks, 2025 saw one of the worst ever relative declines in developed markets, and the worst ever in emerging markets. Now, however, nerves are on edge, as Google searches for “AI bubble” fly off the charts, and people are starting to look for safer options. As a category, quality has outperformed global indices by about 2.5 per cent a year for the last 30, translating to a huge lead in cumulative returns over that period: about 2,600 per cent to 1,200 per cent.The real sweet spot is the subset of quality stocks trading well below their long-term valuation. Worldwide, this group is now concentrated in the industrial sector, followed by financials and consumer discretionary companies. Following similar periods of underperformance and from such relatively low valuations, these stocks have delivered double-digit returns. That puts them in good position for a 2026 comeback.Two masks hide China’s troublesMuch has been said about how one factor, AI, is holding up the US economy and markets. A similar story is playing out in China, where exports are saving the economy and AI is driving the market.After years of underperformance, China’s markets were dismissed as “uninvestable” by many global investors, leaving them irrationally and attractively cheap by the end of 2024. They bounced back strongly last year, but mainly on AI-fuelled bullishness. Outside of the tech sector, the rest of China’s stock market suffered from negative earnings growth.This reflects the fact that China’s domestic economy is hardly growing, weighed down by a busted property market, too much debt and a shrinking population. But strength defines the export sector, which is expanding its share of global markets and propping up the overall economy. Without the export surge, nominal GDP growth would be barely 3 per cent, significantly lower than the officially reported rate of about 4 per cent.Wall Street analysts and economists keep urging China to unleash new stimulus, but their Keynesian bias is blinding them to the underlying problems. China’s total debt including households and corporations is already above 300 per cent of GDP; its augmented fiscal deficit (which includes its influential local governments) is above 11 per cent of GDP. Lacking the money for stimulus, Beijing will be hard pressed to spend more, and the domestic economy will keep disappointing.‘China dumping’ becomes a targetAmid growing signs that Donald Trump is done increasing tariffs, given the affordability crisis at home, a new global trade controversy is creeping to the fore: China’s export dumping.For the last two years, China has engineered a dramatic increase in its export volumes by slashing prices and holding down the value of the renminbi. As a result, China continues to gain global market share at the expense of rival exporters, including Germany, France and Japan among developed economies, and many established manufacturing powers in the emerging world.China is working to lessen its dependence on sales to the US, and shifting its exports to other countries, hollowing out factories worldwide. Hardest hit are nations in south-east Asia, eastern Europe and Africa, where manufacturing has fallen significantly as a share of the economy, particularly over the past year.Signs of a backlash are building. The number of trade investigations into Chinese dumping has more than doubled since 2023 to 120, worldwide. From Japan and Canada to Mexico and Thailand, nations are beginning to hit China with retaliatory tariffs. The EU is considering “made in Europe” rules. French President Emmanuel Macron recently warned — in Beijing — of “unbearable” trade imbalances.Given its economic troubles at home, however, Beijing is not likely to listen. In 2026 “China dumping” could come to rival “Trump tariffs” as a target of global anger.South America turns sharp rightA rightward turn that began two years ago could complete its sweep of major South American countries this year, making the world’s hottest regional markets even more popular.As Chile’s former president Sebastián Piñera once told me, Latin America turns left in good times, right in bad times. And times have not been good. Voters are increasingly concerned about crime, corruption and inflation. Leaders from the right took power two years ago in Argentina, won last year in Ecuador and Chile, and are expected to prevail again this year in Peru and Colombia. The wild card is the big prize, Brazil. There the frontrunner is leftwing President Luiz Inácio Lula da Silva, but he could face a serious second-round challenge from the market’s favourite candidate, São Paulo’s rightwing governor Tarcísio de Freitas.For decades now stock markets in the region have performed far better under leaders from the right. And last year, this region was home to the top-performing markets in the world, up more than 50 per cent on average, compared with 30 per cent in emerging markets as a whole and 16 per cent in the US. The more the right wins, the more likely it is that Latin America’s markets keep rising.Deregulation goes globalThe so-called Department of Government Efficiency may be gone but the Trump drive to deregulate isn’t dead. By several counts the costs imposed by regulation are coming down in the US, and now much of the world is trying to compete. Even Europe, the “Silicon Valley of regulation”, seems to have realised that innovation in new rules isn’t necessarily good for its economies.From unusually high peaks in 2024, the US generated less than half as many economically significant new regulations last year, and the EU generated barely a quarter as many new “legislative rules”, with more cuts to come. One proposal would lower the number of companies subject to EU environmental sustainability rules from near 50,000 to less than 2,000.Emerging markets are wielding the axe too. Argentina has scrapped rent controls, tripling the supply of available units. “Red tape rationalisation” cut from days to minutes the time it takes for goods to clear customs in Malaysia. Saudi Arabia may lift its 49 per cent cap on foreign ownership. And India is setting up its own deregulation commission, albeit with considerably less Sturm und Drang than its US predecessor.This quieter revolt against the regulatory state is gaining traction and is likely to gain speed this year.Immigration bustWith many western countries shutting their doors, the economic impact of this historic turn against immigration is likely to grow and spread in 2026..Read more:. AI-fueled stock surge sparks dotcom bubble fears.The collapse is eye-popping and not restricted to the US. The latest estimates show that from all-time peaks in 2023, net immigration fell last year by 85 per cent to just 500,000 new arrivals in the US, and by 50 per cent to 1.2mn in the EU. In the UK the peak came a year earlier, and the decline has been just as deep, with net immigration dropping 75 per cent to 200,000.Outside the US, the crackdown may have been less dramatic and well televised but hardly lacking in vigour. The EU cut border crossings by more than 20 per cent in the first nine months of 2025, expedited the rejection of asylum applicants, and offered financial and diplomatic incentives to outside countries to accept returns and prevent departures. Former immigrant magnets such as Canada and Australia have pulled up the welcome mats, cutting the inflow of international students and (in Canada) the supply of permanent resident permits. Even in Spain, perhaps the only major western country still opening its doors, opposition to immigrants is rising in polls, lifting the fortunes of rightwing parties.Amid widespread fear of AI and the threat it poses to jobs, a continuing immigration bust will push the opposite way. It is shrinking workforces and giving unions more bargaining power, which could add to labour costs — and inflation pressures — in 2026.Peak alcoholToday a smaller share of Americans say they drink alcohol than at any point since Gallup started asking the question in 1939. And they are not quitting alone.British consumption just hit a record low, and a similar trend holds across developed and emerging countries, with strikingly big drops in some known to enjoy a drink or two . . . or more. The average Russian now drinks about 7.5 litres of booze a year, down from nearly 10 a decade ago.One result: hard times for alcohol stocks. This decade global stocks are up nearly 60 per cent, while a basket of 16 leading international distillers, wineries and brewers is down 35 per cent, and the slide appears to be picking up speed.Drinking is down in part because people are worrying more about the health effects, and in some countries, turning to cannabis as a safer high. In just the past two years, the share of Americans who say drinking even in moderation is bad for you increased from 39 per cent to 53 per cent. And polls show people under the age of 35 are much more likely than their elders to worry about the health effects. Striding along on sober young legs, this trend is unlikely to wobble and fall any time soon..© 2026 The Financial Times Ltd.

FT: Ruchir Sharma shares the Top 10 trends for 2026. Brilliant.

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