Equity: the broadening of opportunity
The investment landscape for equities in 2026 is expected to be characterised by a fundamental transition from narrow market leadership to a broader, more inclusive rally.
For several years, global returns have been dominated by a handful of massive technology companies in the US. While these industry titans remain critical to the economy, the investment narrative is evolving rapidly.
The driving force behind this shift is the evolution of the artificial intelligence growth story.
What began as a frenzy over software and large language models has now transitioned into a massive buildout of physical infrastructure, the physical AI cycle. The binding constraint on technological progress is no longer just code, but the physical capacity to run it.
This reality is redirecting capital towards the “picks and shovels” of the digital age.
Investors are increasingly focusing on the industrial base required to power data centres, including utilities that provide electricity, manufacturers of cooling systems and the companies upgrading ageing electrical grids.
These sectors, often viewed as defensive or slow growing in the past, are now at the forefront of a secular growth trend, effectively becoming the engine room of the next economic phase.
The simultaneous demands of the artificial intelligence buildout are creating a favourable environment for mining majors and energy producers, who control the finite resources essential for the modern economy.
As this capital expenditure boom cascades through the economy, it is catalysing a much-needed equity broadening. The extreme valuation gap between the largest technology stocks and the average company is expected to narrow.
For some time, the broader market has languished while a select few garnered all the attention.
However, as interest rates stabilise and economic growth normalises, the “forgotten” segments of the market are primed for a rebound. This calls for a more balanced approach between growth and value stocks.
Value-oriented sectors that were left behind during the tech boom are now showing signs of life, offering investors a way to participate in market upside without paying the premium valuations commanded by the technology giants.
In Europe, the investment thesis is pivoting towards the theme of European autonomy. This is a structural shift driven by geopolitical necessity rather than simple economic cycles.
The region is moving aggressively to reduce its reliance on external powers for its security and energy needs. This drive for ‘strategic autonomy’ is creating long-term investment opportunities in sectors that were previously overlooked.
Defence and aerospace companies are benefitting from a secular increase in government spending as nations ramp up their military capabilities to meet new geopolitical realities.
Similarly, the push for energy independence is accelerating investment in green industrials and domestic technology ecosystems.
These companies are not just value plays; they are beneficiaries of a continent-wide industrial policy that prioritises continental resilience.
Finally, macroeconomic volatility and higher costs of capital mean that the gap between winning and losing companies is widening. In 2026, the advantage lies with active stock selection.
Investors must distinguish between companies with genuine pricing power and strong balance sheets and those that are heavily indebted or facing disruption.
This environment favours a more hands-on approach to portfolio construction, where the ability to identify specific winners within sectors matters more than simply betting on the sector itself.
The fixed income markets in 2026 offer a compelling landscape for investors, defined by the return of genuine income but complicated by structural challenges.
After years of negative or negligible yields, the asset class has experienced an income renaissance.
Bonds are once again fulfilling their traditional role of providing steady, reliable cash flow. However, the strategy for capturing this income has changed.
The days of relying on capital appreciation from perpetually falling interest rates are largely over. Instead, the focus has shifted to “carry” ‒ locking in attractive yields from high-quality issuers.
Investment grade credit, particularly in the eurozone and the US, stands out as a sweet spot. Corporate balance sheets in these regions remain generally healthy, often healthier than their sovereign counterparts, allowing investors to earn yields significantly above cash with a relatively modest risk profile.
Driven by the objective of income generation, we maintain a constructive view on sub-investment grade bonds. The asset class continues to provide attractive yields, bolstered by resilient corporate fundamentals and expectations of historically low default rates.
With no immediate recession on the horizon, the economic backdrop is supportive, enhancing the appeal of carry. Notwithstanding this positive backdrop, we are actively monitoring emerging risks, particularly those emanating from the cooling US labour market.
“The gap between winning and losing companies is widening”
This renewed appeal of income comes against a backdrop of structural inflation. Forces such as deglobalisation, the emergence of tariff shocks, ageing demographics, and the costs of the green transition exert persistent upward pressure on prices.
This structural shift implies that inflation volatility will remain a constant companion for investors. Consequently, protecting purchasing power is paramount.
The government bond market faces its own unique set of pressures, primarily driven by fiscal dominance. Across the developed world, governments are running large budget deficits to fund industrial policies, defence spending and social programmes.
This surge in government borrowing increases the supply of sovereign debt, which can weigh on bond prices.
Investors are increasingly demanding extra compensation for the risk of holding long-term debt in an environment of fiscal extravagance.
This dynamic suggests that long-duration government bonds carries heightened risks. Investors may find better risk-adjusted returns in medium-dated maturities, where yields are attractive and exposure to volatility is lower.
Navigating this complex environment requires a shift away from passive aggregate bond indexing. The disparity between different sovereign yield curves and credit markets means that flexibility is key.
The corporate credit market offers a haven for yield, provided investors remain selective and avoid issuers with unsustainable debt loads.
The fixed income market of 2026 is no longer about waiting for rates to hit zero; it is about actively managing exposure to capture yield while insulating portfolios from the twin risks of sticky inflation and fiscal expansion.
Local markets: yield, risk, resilience
As we look towards 2026, the Maltese financial landscape presents a compelling picture of economic resilience. The macroeconomic backdrop remains supportive, with real GDP growth projected to stabilise at 3.7% for the year.
This performance, which continues to outpace the broader eurozone average, is underpinned by robust private consumption and a strong tourism sector.
With inflation forecast to settle near 2.3% for 2026, the economy offers a predictable foundation for investors. However, beneath these steady headline numbers lies a complex capital market environment characterised by significant technical challenges that demand a hands-on investment approach.
In 2026, the local fixed income market will be characterised by a “maturity wall”. Over €300 million in corporate bonds are set to mature this year, creating significant supply for the market to absorb.
This wave of redemptions coincides with funding requirements from the government to cover refinancing and fiscal deficits, with over €860 million of Malta Government Stocks maturing this year.
This heavy supply of sovereign paper is likely to keep yields elevated and attractive relative to European benchmarks, but it also crowds out liquidity for corporate issuers.
Consequently, a sharp divergence is emerging between high-quality corporate issuers, who will easily refinance their debt, and weaker companies that may face struggles.
In this environment, active credit selection allows for the avoidance of potential distress while capturing higher yields from secure issuers.
On the equity side, the narrative for 2026 is shifting towards capital efficiency and shareholder returns. The banking, tourism and telecommunication sectors remains a pillar of strength.
However, the defining theme for the year is the increasing use of share buyback programmes by major listed companies. These programmes provide a vital technical support level for share prices.
For investors, this signals an evolution of Maltese corporate governance, moving beyond simple dividend payouts to more comprehensive total return strategies.
The Maltese equity and corporate bond market show a notable concentration in real estate-related issuers, which can increase sector-specific risk and reduce diversification.
This exposure must be closely monitored to ensure financial stability and investor protection. The divergence between winning and losing issuers means that capital preservation and growth will depend heavily on professional selection.
This document is issued by BOV Asset Management Limited. Opinions, estimates and projections in this publication constitute the current judgement of the author as of the date of this publication, and should not be construed as investment advice. The Company has obtained the information contained in this document from sources it believes to be reliable, but it has not independently verified this information contained herein and therefore its accuracy cannot be guaranteed. The company makes no guarantees, representations or warranties and accepts no responsibility or liability as to the accuracy or completeness of the information contained in this document. The company has no obligation to update, modify or amend this publication or to otherwise notify a reader thereof in the event that any matter stated therein, or any opinion, projection, forecast or estimate set for the herein changes or subsequently becomes inaccurate. Income from an investment may fluctuate and the price or value of the financial instrument described in this presentation, either directly or indirectly, may rise or fall. Furthermore, past performance is not necessarily indicative of future results. ESG is a set of criteria measuring the sustainability of companies from three perspectives – environmental, social and governance. To further demonstrate our commitment to ESG principles, the BOV Group is working to be ESG compliant in its offerings to its clients. However, currently, the investments underlying the financial products mentioned herein do not take into account the EU criteria for environmentally sustainable economic activities. Any investments in any of the funds mentioned herein plc should be based on the full details of the Prospectus, Offering Supplements and KIDS, which documents may be obtained from the company, Bank of Valletta plc branches and investment centres and other licensed financial intermediaries. BOV Asset Management Limited is licensed to conduct investment services in Malta under the Investment Services Act (Cap.370 of the laws of Malta) by the Malta Financial Services Authority. The BOV Investment Funds is a common contractual fund licensed by the Malta Financial Services Authority and qualifies as a UCITS. The Vilhena Funds SICAV plc is licensed by the Malta Financial Services Authority and qualifies as a UCITS. Issued by BOV Asset Management Limited, registered address 58, Triq San Żakkarija, Il-Belt Valletta, VLT 1130, Malta.
