Chief Investment Officer,
Aviso and NEI Investments
As we approach the midpoint of 2026, there’s a sense markets are holding their breath as investors wait to find out what’s next for everything from the Iran war to agentic AI. In an environment of heightened uncertainty, it’s very difficult to make short-term forecasts. That’s why it’s so important to take the long view, says John Bai, Chief Investment Officer and a Senior Vice President with Aviso and NEI Investments.
Still, looking ahead toward the second half of 2026, Bai offers some shorter-term perspectives. He thinks oil prices may settle somewhere around $80 per barrel once the Strait of Hormuz has reopened stably and sustainably. In the meantime, the closure and resulting high oil prices will continue to affect Europe, Asia, and emerging markets more than the U.S.
Even with a near-term resolution, he says, “we’re not likely to see oil prices at prewar levels of $60 a barrel. Those days are probably over. There’s now a risk premium that’s going to be put in the oil market [because of war-inflicted] damage to the infrastructure.”
Oil supply interruptions are occurring alongside another significant development: a divergence in how equity and bond markets are responding to massive capital expenditure (CapEx) on AI compute.
Equities recognize the demand for AI data centres is a long-term driver of growth that will be further amplified by the emergence of agentic AI. Bond markets, meanwhile, are paying more attention to inflation. As a result, U.S. 30-year bond yields broke through the psychologically significant 5% barrier, and 30-year bonds in countries like the U.K. and Japan have yields at multi-decade highs.
“Right now, equities are largely focused on earnings — but if an oil shock were to push interest rates higher, and those levels proved persistent, it would put pressure on valuations.”
The NEI Investments team is closely monitoring the technology sector in the U.S. While earnings have been strong, the backdrop is evolving and a wave of new supply is emerging with large-scale IPOs of high-growth companies that are trading at elevated valuations and remain deeply cash flow negative. Combined with a shift among mega-cap companies toward debt-funded CapEx, this increase in supply could act as a catalyst for market rotation into other areas of the market.
Longer term, broader trends will play out. Bai suggests the U.S. dollar is in a multiyear depreciation cycle. He points out that over the past 60 years, the dollar has followed a rough pattern of 10 years rising and 10 years falling. After peaking in 2023, it has declined in response to secular trends such as shrinking interest rate differentials between the U.S. and other countries, including the U.K. — and especially Japan.
Reinforcing this trend is a move toward deglobalization as countries diversify trade away from the U.S., putting further downward pressure on the dollar. An Asian trading block, for example, doesn’t need to settle in dollars; it can use local alternatives. Meanwhile, many central banks have been reducing their reliance on the U.S. dollar by buying gold and other currencies.
At the same time, the U.S. dollar is now expensive on a purchasing-power basis, which is also contributing to its decline in relative value.
Opportunities for investors
Historically, Bai says, some asset classes have done especially well during periods of U.S. dollar depreciation. These include commodities, emerging markets, and international markets.
In this cycle, emerging markets were one of the best-performing asset classes in 2025. Then the Iran war strengthened the dollar, and investment that had previously flowed out of the U.S. and diversified into emerging markets changed course. Specifically, many investors reinvested in the Magnificent Seven following strong earnings in the first quarter of 2026.
However, once the Iran war ends, Bai expects the previously established patterns to resume, including a weakened U.S. dollar and outperformance in commodities, emerging markets, and international markets.
He also sees opportunities for investors in global bonds — a part of the bond market Canadian investors often ignore in favour of domestic bonds.
“There are many good reasons to be in Canadian bonds…but we also think global bonds make sense for certain investors for diversification,” says Bai. “Especially with interest rates at current levels, there’s plenty of opportunity for active management in that part of your portfolio.”
In equities and bonds, he emphasizes, risk mitigation means diversifying to a greater degree than at any other point in the past 20 years. Advisors can demonstrate their value by redoubling efforts to understand clients’ risk profiles and carefully analyzing overexposures and underexposures.
Active management can help advisors construct resilient portfolios for their clients, Bai adds. Highly concentrated markets leave less room for active management to outperform benchmarks — but, as the market broadens, there’s more space for active strategies to differentiate themselves.
Especially in the environment that Bai expects to develop throughout the rest of the year and beyond, active management, combined with global expertise, may help investors achieve the right balance between risk and reward.
Hear more insights from John Bai at NEI Investments’ mid-year outlook on July 16.
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