In this episode, Mark and Shani walk through Morningstar’s latest “Navigating Uncertainty” outlook to unpack what analysts are watching as we head into 2026.

From the US dollar and currency hedging, to AI spending risks, to overlooked global opportunities in the UK, emerging markets and US small caps plus three Australian wide-moat stocks trading at rare discounts.

This episode helps investors think clearly about the year ahead without overreacting.

Most importantly, they remind investors that behaviour, not predictions, is what usually determines success.

We’ve put together a list of our best resources to arm you with the best tools to make 2026 your most productive one yet.

How retirees can meet today’s needs without sacrificing tomorrow. Key insights for Australian investors from Morningstar’s 2026 Outlook report.

Young & Invested: Is this the strategy for 2026 and beyond? What last year’s market rotation might be signalling.

Your 2026 Investor Calendar: This calendar lays out the important dates and events during the year that investors should keep in mind.

Morningstar’s State of Retirement report: The latest edition of our yearly report reveals the safe withdrawal rate for retirees based on the latest market conditions and data.

How to successfully monitor your portfolio: For successful investors, your job doesn’t end when you hit ‘buy’.

Why this might be the wrong ETF for Aussie equity exposure: Mark goes through the process of playing devil’s advocate for his ETF choice for Australian equity exposure. An important exercise for all investors, as it ensures that there are no biases at play and helps you make a strong decision about securities that you choose to include or exclude in your portfolio. He runs through detailed analysis for why it should be included in his portfolio.

Are you wealthy? These are some of the factors that determine if you’re doing well. Assess how you’re doing during your review.

Should I sell this high flying share?: Mark reviews his portfolio and realises he has a dilemma of how to handle a position in his portfolio that has grown too large.

Transitioning to a ‘grown up’ portfolio. You’ve reviewed your portfolio and realised that some holdings don’t align with your goals anymore. What do you do when you have made investments in the past that you no longer believe in?

Portfolio rebalancing key to managing risk: Should rebalancing be part of your portfolio review and maintenance? Financial advisers say becoming overweight the winners may expose your portfolio to greater risk, writes Nicki Bourlioufas.

Your year-end portfolio review: In six easy steps.

Is it time to rebalance your portfolio? Undertaking a year-end portfolio review.

3 simple portfolio checks to do right now Whether you’re doing an end of financial year check-up, or a quick sense check during the year, these three sense checks will give you peace of mind.

You can find the transcript for the episode below:

Mark LaMonica: We’re going to take a risk today, Shani.

Shani Jayamanne: We are actually.

LaMonica: But we are taking the risk for love.

Jayamanne: Yeah, we are. So Will is going on an extended honeymoon, which means that we’ve been recording a lot of episodes to make sure that no one misses out on their Investing Compass episodes while he’s gone.

LaMonica: Exactly. But this one is a particular risk because we’re going to go through an annual rite of passage. A rite of passage that is almost certainly going to be wrong. But we’re going to go through a 2026 market outlook, but we’re going to go through it. We’re recording this in late November.

Jayamanne: You’re really instilling our viewers and listeners with confidence, Mark.

LaMonica: I’m trying to be realistic and kind of a disclaimer as well. But I want to start with Morgan Housel. So wrote a number of books, not this one, Shani.

Jayamanne: No, we wrote that one.

LaMonica: We wrote this one. Morgan Housel’s books apparently sell better than our book. But anyway, I want to talk about something that he recently said. And he said, the past is never as good as you think it is. The present is never as bad as you think. And the future is always better than you anticipate.

Jayamanne: I like the quote as well. And it does make sense. We tend to romanticize the past because we know how things work out.

LaMonica: Exactly. And it doesn’t actually really matter if things work out well or something bad happens. We just think back to that time before, in the case of something bad happening, before the bad thing happens. And of course, if it does work out well, you kind of forget about all that uncertainty at the time. So, if you’re working really hard for a promotion and you then get promoted, well, of course, it just seems like you got what was coming to you. Same thing if you’re dating somebody and you’re really nervous about dating them. If it works out and you get to go on extended honeymoon like Will is, then all of a sudden all of that made complete sense. And that past seems great because you know what that outcome is.

Jayamanne: And the present and the future always seems like a mess because of the uncertainty. But despite Mark’s lack of confidence, we are going to try and unpack the future for you today.

LaMonica: And we’re going to use a Morningstar report, Shani, that was put together by a bunch of analysts and it’s called Navigating Uncertainty, Prepare Without Overreacting.

Jayamanne: Seems wise.

LaMonica: It does. It does. And there are lots of themes throughout this report. And we’re going to touch on a few of them that we think might be of interest to Australian investors. So, we’re going to start out with the US dollar. So, what did our analysts have to say about the direction of the US dollar? And I’m interested in this because you know...

Jayamanne: You have a lot of them.

LaMonica: Okay, that is not what I meant. I meant that I go back to the US and have to spend US dollars. Thank you for that, Shani.

Jayamanne: Well, there has been a lot of talk about the structural collapse of the US dollar. Our analysts think that this is a bit doom and gloom. Instead, they think the US dollar is in a cyclical decline due to present conditions including slowing US growth, narrowing interest rate differentials, persistent fiscal deficits and elevated inflation.

LaMonica: Now, this is looking at the US dollar overall against all different currencies. What many listeners of course care about is the Australian dollar. And our analysts only think that the US dollar is moderately overvalued compared to the Australian dollar. Now, if the Aussie dollar continues to appreciate against the US dollar, that would detract from returns for an investor that owns US shares. So, that would make it more attractive to own a hedged investment and that is one where they remove the currency risk from the returns.

Jayamanne: Now, for long-term investors, we certainly wouldn’t recommend making wholesale changes to your portfolio. Selling a non-hedged ETF to buy a hedged ETF could result in taxes and would definitely result in transaction costs. And remember that our analysts think this is a cyclical decline, which means that it’s not a long-term prediction for the dollar.

LaMonica: Now, what do you think? Talk about the US dollar. Do you think I’m in a cyclical decline or do you think this is a wholesale collapse?

Jayamanne: No comment.

LaMonica: Okay. That means we know what the answer is. But we’re going to now explore our analysts view on something that not a lot of people are talking about out there, Shani, and that is AI.

Jayamanne: This is such an obscure topic. I just don’t know why would be covering it, Mark. Maybe you should remind readers what AI stands for.

LaMonica: Yeah, it actually stands for artificial intelligence, Shani. So, we’re obviously joking around a little bit, you can’t have a market outlook without talking about AI. So, we’re going to talk about it.

Jayamanne: And an interesting fact from our analysts is the amount of money that some of the tech giants are spending on AI. Most of the spending is on data centers. The combined 2026 AI capital expenditures is forecast to be more than four times what the publicly traded US energy sector spends to drill exploration holes, extract oil and gas, and deliver gasoline to its stations, and run large chemical plants.

LaMonica: So, that’s a lot of money. And when we say large tech companies, that includes Meta, Alphabet, so Meta, of course, Facebook, Instagram, et cetera, Alphabet, Google, Microsoft, Amazon, and Oracle. And our analysts do point out that there are lots of risks involved in this spending. The first is just execution risks that comes from building all of these data centers all over the world. And that’s increased by some of the environmental concerns about the water usage and the power usage in these things.

Jayamanne: The second big risk is the business models of AI. It isn’t entirely clear how AI will be monetized. For example, our analysts cite, the case of ChatGPT, where only 5% of users pay for it. And our analysts compare AI to the dotcom era, where investors became really concerned with things like clicks and page views, but ignored profits.

LaMonica: And another concern that our analysts have, we’re just going to go through a lot of concerns.

Jayamanne: Yeah, they’re really worried.

LaMonica: Exactly. Exactly. Another concern that our analysts have is potentially for the cost to blow out for AI. Obviously, with anything new that you’re doing, it is difficult to see what the cost will be. And about 35% of data center spending is on chips and servers. And the estimate right now is that the useful life for chips and servers and all the other equipment is five to six years. If it’s anything less than that, that could be a really big problem.

Jayamanne: And despite those risks, our AI index shows that AI related companies are only slightly overvalued on a price to fair value perspective.

LaMonica: So our analysts advice with all of this risk, the fact that this AI related companies are slightly overvalued, is just to make sure that your exposure is appropriate to that sector. So if you own a US index fund, that will give you approximately 29% exposure to the giant AI name. So if you double down and then buy some of the individual names, all of a sudden you could find a lot of your portfolio exposed to AI. So maybe this is a place that our analysts think that potentially people should be careful about, but we also want to talk about opportunity, Shani. So what’s an opportunity?

Jayamanne: All right. So one place that they do see value is in the UK. Given Brexit and budget issues, there is a lot of negativity around the UK. And our analysts believe investors are too pessimistic and think the valuations in the UK are really compelling, and they like the global nature of UK companies, where 80% of revenues are coming from outside of the UK.

LaMonica: And just for some perspective, the UK market is trading at half the valuation level of the US. And a couple examples of companies that our analysts think could potentially be good bargains at these prices are Unilever and GlaxoSmithKline.

Jayamanne: And other opportunities that our analysts see are in emerging market shares and in US small cap shares.

LaMonica: All right. When we turn our attention to Australia, because of course, everyone is interested in Australia, or at least Australians are. So we currently have three wide moat shares that are trading in five-star territory, which represents the cheapest shares in our coverage universe.

Jayamanne: And it is rare for wide moat shares to trade in five-star territory, which often means there is negative sentiment from investors.

LaMonica: So all of these are on our global best ideas list, but we’ll go through them, Shani, and I’ll go first with ASX.

Jayamanne: A share that nobody likes.

LaMonica: Exactly. Which is why it’s cheap. We need to remember that. So I’ll quote from our analyst Roy on why ASX is on our best ideas list. We view ASX as a natural monopoly, given that it provides essential infrastructure to Australia’s capital markets. Despite the deteriorating regulatory environment, we believe the business is well protected by its wide economic moat based on network effects and intangibles. We also believe the energy transition is an underappreciated tailwind. We expect it to spark demand for resources in which Australia holds strong natural endowments to deliver new listings and a long tail of revenue from trading and clearing activity.

Jayamanne: And on November 24th, it was trading at a 25% discount to our fair value.

LaMonica: All right, Shani, let’s go through the next one. You can do this. It’s Endeavour. So one of your favorite stores to go to is Dan Murphy’s, which Endeavour owns. What does our analyst, Johannes, have to say about it?

Jayamanne: So he said the following, the market under appreciates Endeavour’s defensive long-term earnings outlook. Consumers are trading down to cheaper options and buying in bulk for at-home liquor consumption. We believe recent liquor retailing performance reflects cyclically weak demand due to cost of living pressures. However, we expect liquor sales momentum to improve and sales growth to reach durable levels in the mid-single digits from fiscal 2027. In the longer term, we believe liquor demand is defensive, underpinned by inflation, population growth, and a structural trend towards premiumization. In the smaller hotel segment, earnings are proving resilient and Endeavour is trading at 40% discount to our fair value estimate.

LaMonica: And I believe that you buy liquor in bulk. So you’re a good example of this.

Jayamanne: I do. Let’s not go too deep into that.

LaMonica: No, because you like a bargain, not because you drink the bulk supply of liquor every night.

Jayamanne: Maybe it’s both.

LaMonica: Yeah. All right. So last one up is certainly a share that has had a lot of negative headlines. WiseTech, also covered by our analyst Roy, who covers ASX. And he said the following about putting it on our best ideas list. Corporate governance issues centered on founder Richard White have cast a cloud over WiseTech and its future business prospects. But we believe these issues and the risk of White leaving are overly discounted in the price. The business is well established with a deep bench of talented people. It has no competitors of note and is still early in its market opportunity. We expect the company to continue to dominate logistics software for freight forwarders and continue to build new valuable products for its growing list of blue chip customers.

Jayamanne: Okay. So those are the recommendations from our analysts, but we want to leave you with some of our own. Over the years, we’ve talked a lot about what we think is holding investors back and it isn’t what’s in their portfolio. It’s their own behavior.

LaMonica: And we even wrote a book about it, which I happen to have here. But the big focus, I think, for the coming year is to focus on yourself. So investing provides an amazing opportunity to transform your life. It’s something that the two of us believe or we wouldn’t be doing this. And there are going to be some things that happen in 2026 that feel scary, things that will make you want to take drastic action, change your portfolio around. And that isn’t us predicting some calamity. It’s just our knowledge of history, because this stuff happens almost every single year.

Jayamanne: So focus on yourself and the future that you do want to build. Think about the best way for your portfolio to support this vision of your life. If you don’t have goals and a strategy, invest some time to put that structure around your decision making and it will pay off in the future.

LaMonica: And one final prediction. So Shani and I and the rest of the team here at Morningstar will be supporting you with whatever happens in 2026. And we will keep reminding you to focus on the long term, try to dampen those emotions that are causing you, that are trying to get you to act and help contribute to investors making poor decisions. So we’re looking forward to spending 2026 with you.

Invest Your Way

A message from Mark and Shani

For the past five years, we’ve released a weekly podcast and written on morningstar.com.au to arm you with the tools to invest successfully. We’ve always strived to provide independent, thoughtful analysis, backed by the work of hundreds of researchers and professionals at Morningstar.

We’ve shared our journeys with you, and you’ve shared back. We’ve listened to what you’re after and created a companion for your investing journey – Invest Your Way. Invest Your Way is a book that focuses on the investor, instead of the investments. It is a guide to successful investing, with actionable insights and practical applications.

If anyone would like to support this project you can buy the book now. Thanks in advance!

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