Cross-Asset Quarterly Outlook
March 2026*
Let’s Get Cyclical
- Global activity data are improving, with manufacturing indicators rebounding and cyclical sectors regaining leadership. While risks remain, the macro backdrop is becoming more supportive for pro-cyclical assets.
- Once Middle East geopolitical risks fade, a renewed USD downtrend should ease global financial conditions, favouring non-US equities and commodities.
- We maintain an equity overweight, move to neutral in rates, and remain underweight high yield credit. In commodities, we stay overweight metals while rotating modestly from precious into industrial exposure.
Our update this quarter highlights the improvement in global economic data and the asset implications of an improving cyclical backdrop. Investors’ threat detector (or amygdala) can always identify risks, some of which may evolve into more persistent market headwinds. This list might include geopolitical conflicts, US political uncertainty and tariffs, or disruptions linked to AI (e.g., software stock declines). Given these factors, some volatility spikes and a “wall of worry” are reasonable assumptions over the coming months. At the time of writing, the US-Iran conflict is the dominant theme supporting volatility. However, the improving trend in several activity measures may prove the more dominant driver beyond the next few weeks, supporting pro-cyclical assets (Chart 1 highlights recent cross-asset trends).
Global Growth
The global manufacturing PMI improved to 51.9 as of February. The US ISM manufacturing survey has also seen a sharp rebound, with the new orders component at 55.8. These recent upticks are consistent with our leading indicators, which have strengthened alongside global monetary and fiscal support. Historically, a rising manufacturing PMI supports cyclical assets. Chart 2 highlights this relationship, although it weakened in recent years as global manufacturing growth remained subdued while large-cap technology stocks supported global equity prices. A reacceleration in non-tech growth should help re-establish this historical correlation as activity broadens across sectors.
We were generally cautious on global growth last year while emphasising upside from the AI capex cycle—a “K-shaped” economy. We continue to expect large-scale AI investment to support advanced hardware producers and manufacturers. Chart 3 shows that Taiwan export orders continue to provide a positive signal for future earnings growth. There is also scope for activity to broaden into non-technology sectors in 2026, allowing productivity gains to become more self-sustaining as AI use cases become more visible. Chart 4 highlights one example: US software stocks have come under pressure, while the broader market has reached new all-time highs this year as cyclical sectors have outperformed.
Chart 1: Dec-Feb Performance (%)
Source: Bloomberg
*The publication reflects asset performance up to February 27, 2026, and macro events and data releases up to March 4, 2026, unless indicated otherwise.
The information contained herein is obtained from sources believed by City of London Investment Management Company Limited to be accurate and reliable. No responsibility can be accepted under any circumstances for errors of fact or omission. Any forward looking statements or forecasts are based on assumptions and actual results may vary from any such statements or forecasts.