In my August letter, I cover:

• How our response to challenges can chart a course for economic growth

The history of productivity and economic growth can also be seen as a journey of overcoming obstacles and creating new value.

• Why I view equity investing as a vote of confidence in innovation

Equity investing works because companies, founders, scientists and societies continually take risks, adapt and innovate in search of solutions and growth.

• Our high conviction investment views on a range of asset types

We are overweight equities (with a preference for emerging markets) versus government bonds. However, we value bonds and, where appropriate for our customers, gold and liquid alternatives for their diversification properties.

The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. Past performance should not be taken as a guide to future performance. You should continue to hold cash for your short-term needs. This article should not be taken as advice.

Humans are great adventurers, thriving amid change and challenge. But, perhaps due to evolutionary biology, we’re wired to notice threats more readily than opportunities – after all, our ancestors were wise to run if they heard a branch crack rather than question what it might be. The excitement of a great journey might call to us, but threats demand our immediate attention.

In my role as Coutts Chief Investment Officer, the rubber hits the road for me in the day-to-day navigation of financial markets. The first half of 2026 has been a noisy expedition, with the potential threats perceived by investors coming in many guises: geopolitical tensions and military conflicts, inflationary pressures and energy security, high government debt levels and technological disruption… the list goes on.

But, while there’s been plenty of foreground noise, in the background, humanity has continued on its eternal quest to solve its own problems. 

History can be a fickle guide to short-term events, and the course of technological or societal change is rarely smooth. However, over longer periods, it’s my view that threats to human progress are generally addressed: individuals and businesses innovate, economies grow, and living standards rise.

Humans navigate their way through crises in ways that often create entirely new sources of economic and market value. Importantly, the driving force behind that progress is not luck: it’s the story of human ingenuity.

As I write, it’s hard for me to overlook the history around me among the archives of Coutts clients. From the most famous biologist of all time, Charles Darwin, and the ‘father of modern surgery’, Lord Joseph Lister, to a musician who fundamentally transformed his field, Frederic Chopin, and our own pioneering Victorian philanthropist, Angela Burdett-Coutts… I am surrounded by the stories of innovators and adventurers who utterly transformed the boundaries of what was once thought possible.

But I’m also immediately thinking of a chapter of more recent history which we all remember acutely: a global health, social and economic crisis in the form of the covid-19 pandemic.

Lest anyone forget, in early 2020, global leaders grappled with an unprecedented crisis, with many lives lost and changed. In the background, the world economy also shut down, and equity markets fell.

Faced with a seemingly impassable road ahead, humanity compressed years of scientific progress into mere months. Cross-border and cross-sector (public and private) scientific collaboration and funding accelerated, and multiple vaccines were developed to save human lives. Before the covid-19 pandemic, traditional vaccine development took an average of 10-15 years, and the most quickly developed vaccine in history (for mumps) was four years in the making. The first covid-19 vaccine was ready in less than a year.

Innovation quite literally reopened the world and saved countless lives. Along the way, from an economic perspective, it also reignited growth, consumer demand and investor risk appetite. 

Source: FTSE, Macrobond, Coutts. Data accurate as at 23/07/2026. 

Geopolitical pressures can require exceptional responses too. Russia’s invasion of Ukraine in 2022 created an ongoing humanitarian and existential martial challenge for Europe. Given the importance of the region’s exports, the opening act of the conflict sparked concerns about prolonged energy and food shortages beyond the conflict zone. European industrial competitiveness was questioned, and concerns around economic recession grew.

But while the inflationary impact of the Russia-Ukraine war exacerbated the post-covid inflation shock, over the course of 2022, energy infrastructure adapted, supply chains adjusted, and demand patterns changed. For example, in 2021, 45% of EU gas imports came from Russia; by 2023, that figure had dropped to less than 10%. A crippling recession was considered inevitable in Europe – however, much like Godot, it never arrived.

The human element of the crisis lingers on, but what had appeared to also be a structural economic crisis became another example of adaptation under extreme pressure.

The US-Iran conflict provides an even more recent example. At the start of 2026, as the conflict escalated and the human toll mounted, knock on economic effects also began to emerge.

For example, the importance of the Strait of Hormuz to the global energy supply chain was thrown into sharp relief. Between this critical waterway and the damage to energy infrastructure in the Middle East, many experts said that, not only would the region be unable to return to capacity for liquefied natural gas (LNG) production for years to come, but the world would also run out of oil by May 2026.

It’s not been plain sailing, but human ingenuity has navigated some of the global economic elements of this crisis too. Rapid pipeline repairs in Qatar swept over the original multi-year infrastructure timelines, while a quick switchover to alternative pipelines for Gulf producers such as Saudi Arabia cushioned the impact of Hormuz closures on the global oil supply.

However, the story is broader than the immediate workarounds. Possibly more important has been the falling intensity of oil’s role within the global economy over the past half century. We now produce $1,000 of global GDP using only 0.43 barrels (about 68 litres) of oil, a total decline of 56% from the 1970s peak. The drivers of this change have been multifaceted: from increasingly services-based economies to more efficient machinery, to more diversified sources of energy. However, at its core, this too is human ingenuity in action, making the global economy more resilient and less sensitive to geopolitical events. 

Source: World Bank, Macrobond, Coutts. Data accurate as at 16/12/2024.

GDP per unit of energy use measures how much economic output a country generates for each kilogram of oil-equivalent energy consumed, using GDP adjusted for differences in living costs between countries. This measure is used by the International Energy Agency.

Innovation and progress can (and does) emerge from curiosity and entrepreneurship. It’s human nature to want to do more, to create more, and to do so more effectively and efficiently. An apprentice on Saville Row who helped to make five bespoke suits last year probably wants to make 10 this year as their skills deepen, tools improve and personal confidence grows alongside ambition. This sort of impulse – close to magic, really – forms the productivity which drives economic growth, especially when widely scaled up throughout an economy.

At Coutts, we’ve supported entrepreneurs for more than three centuries, so we’ve witnessed this spirit of adventure first hand.

If we’ve met in person, or you’ve read my letters before, then you probably already know that productivity is among my personal obsessions. But while it’s a critical driving force behind economic growth, in my view, productivity growth is also a strong contender for the world’s most underacknowledged, slow-moving crisis. Without finding ways to do more with the same resources, economies struggle to sustain forward momentum.

Within home shores, the UK economy makes the case for this. Set against a long history of productivity growth, the 21^st century so far has seen UK productivity marred by a downwards slope.

Source: UK Office for National Statistics, Macrobond, Coutts. Data accurate as at 19/05/2026. 

Productivity challenges are not unique to the UK – this is a global issue. But it’s also my view that human ingenuity can find a way through our productivity crisis, and that this journey has already begun.

For example, productivity growth in the US, where the technology sector has charted the course for artificial intelligence (AI) innovation, appears to be in the early stages of a boom. If it continues, these levels of productivity growth could prove transformational, with the potential to address a spectrum of economic problems from high debt levels to income disparity. 

Source: US Bureau of Labor Statistics, Macrobond, Coutts. Data accurate as at 04/06/2026. 

It’s hard to put a price on innovation. AI-related areas of equity markets, both in the US and globally, have certainly had a turbulent few weeks (in the wider context of a stellar few months) as investors attempt to do so.

But whether readers believe that the current expectations for AI equity returns are too optimistic or too pessimistic, it’s difficult to argue against AI as another chapter in humanity's effort to enhance productivity and address its economic growth challenges.

The scale of the investment alone is compelling. US ‘hyperscalers’ (large cloud service providers able to provide computing and storage services at scale) are expected to deliver more than $650 billion of capital expenditure in 2026 alone. And while the US is generally seen as the centre of the map for AI, the map is actually – in this case – a globe. Emerging market (EM) businesses are integral to the global AI supply chain, and in our view EM equities represent a more diversified way to access the AI theme.

Investors do not own media headlines or inspirational storylines; they own assets. For equity investors, this means – via various routes – owning businesses, which broadly innovate, invest in themselves, hire workers, create products, and attempt to solve problems. When they get it right, this equals profit growth.

But progress rarely travels in a straight line. Along the way we experience recessions, technological disruption, conflicts and crises. Big breakthroughs and small innovations – from penicillin (a mould contamination that birthed modern antibiotics) to the Post-It note (a misstep in adhesive development that created a stationery gamechanger) – are often unexpected to the point of serendipitous.

Nevertheless, over a longer time horizon, humanity creates the conditions for ongoing innovation. Productivity has risen, knowledge has amassed, and advances have continued to move the frontier of economic possibility forward. Human knowledge is cumulative, with each generation theoretically inheriting better scientific understanding, infrastructure, institutions, and technology. (Some evolutionary biologists consider this retained memory the key differentiator between us and other mammals, and the reason we developed language and culture as we did.)

So, while setbacks – such as wars, economic growth shocks or the depleting effects of inflation – do matter to the global economy (especially over the short term), they don’t erase all accumulated gains. The journey never starts from scratch, and the world doesn’t begin again after every crisis, but it can be reshaped by our responses to challenges.

I believe that when you invest in equities, you are ultimately investing in our collective capacity to innovate, adapt and progress. That does not mean that every company succeeds, or that every asset delivers positive returns each year. There will be wrong turns along the way, and all investments come with risks – indeed, investing needs these risks in order to be worthwhile over the long run. Without risk, there is lower potential for loss, but also lower potential for reward.  

We’ve been overweight equities to varying degrees since November 2023, but we’re not just perpetually optimistic about the outlook for risk assets. Our process is data-driven, and many factors play into our decision-making, including our specific analysis of areas such as policy change, the inflation picture, and the current economic growth outlook.

Below, we recap some of our highest-conviction investment views.

We still prefer equities over bonds, but have adjusted the balance

We recently moved to a less overweight position in our central house view on equities, taking some profits – while remaining overweight – in response to signals on central bank policies. In reducing our equity overweight, we also reduced our underweight to bonds, which we value for their role as an income provider and recession hedge. 

For now, we’re watching for signs of any additional tightening in financial conditions, or changes to capital expenditure in the technology sector, which could introduce some growth uncertainties. From this vantage point, our view continues to be that we expect growth to remain healthy due to AI spending and strong corporate earnings, which should be supportive for equities.

Emerging market (EM) equities remain our preferred way to access the AI theme

EM equities have benefited from strong investor interest in AI in 2026. This reflects the region’s important role in the global semiconductor supply chain and has supported our decision to increase exposure to EM equities at the start of the year.

Performance has been more volatile in recent weeks, as investors assess the value they place on AI-related EM businesses. We continue to view EM as an attractive and diversified way to access improving earnings prospects and the growth potential linked to the AI theme at a cheaper price.

We prioritise diversity among our diversifying assets

Diversification remains a key part of our investment approach. While government bonds continue to play an important role alongside equities, we also draw on a wider range of diversifiers, including different currencies, gold and liquid alternatives where appropriate for customer portfolios.

By maintaining a well-diversified portfolio through different market conditions, we aim to build resilience across a range of potential outcomes. This flexible approach helps us manage uncertainty and is intended to position portfolios to navigate opportunities and challenges as they arise.

In the short term, unease – whenever it occurs – is easily visible. But innovation, ingenuity, and crisis mitigation are harder to predict or measure. The precise location of the next breakthrough rarely appears on anyone’s map.

Throughout our history, Coutts has served inventors, scientists, entrepreneurs and artists – all have contributed to progress in different ways. More importantly, we’ve endeavoured to help all customers navigate profound change.

The future will undoubtedly present new challenges – it always has. But innovation, adaptation and resilience are among humanity’s most dependable traits. For long-term investors, this remains one of the strongest reasons to stay the course. And we’ll be here helping our customers to understand, make sense of and navigate it all as it unfolds. 

Yours sincerely,

Fahad Kamal

Chief Investment Officer