NOVEMBER 2026
The “quality” equity factor focuses on companies with strong balance sheets, consistent earnings and robust cash flows.
These characteristics tend to make them more resilient businesses, capable of compounding strong returns over the long term.
However, quality stocks can be sensitive to rising bond yields, as higher discount rates weigh on the valuations of companies with durable, long-term earnings streams.
The sharp rise in borrowing costs in recent years has been a headwind to this investing style.
As the chart shows, the performance of quality stocks relative to the global index has fallen to a 10-year low.
Yet with bond yields likely approaching a cyclical peak, the backdrop for quality equities may become more favourable over the coming months.
It has been a challenging few months for Chinese equity investors, following a period of strong outperformance that began in 2025.
As the chart shows, the rolling 12-month return of the Shanghai Composite Index is now on the verge of turning negative, reflecting a sharp loss of momentum.
Technology stocks have been a major driver of recent market movements, both upwards and downwards, reflecting their growing influence within China’s equity market.
The technology sector now accounts for approximately 30% of the China A-share market, up from just 10% a decade ago.
Conversely, traditional “old economy” sectors have seen their influence diminish with real estate now representing less than 1% of the market.
This structural evolution highlights how China’s equity market is becoming increasingly driven by innovation and technology, rather than the property and infrastructure sectors that historically powered its economic growth.
Indian equities have struggled in recent months, leaving the Sensex index looking increasingly vulnerable from a long-term technical perspective.
Rising global bond yields, higher energy prices and a weak monsoon have weighed on sentiment, whilst foreign investor outflows and heavy domestic share issuance have added further pressure.
Yet despite this international investor exodus, India’s underlying economic fundamentals remain robust, supported by an increasingly favourable policy environment.
Strong non-resident deposit inflows have bolstered foreign exchange reserves and banking liquidity, corporate leverage is at a 25-year low, and earnings growth is rebounding.
Over the past two years, global investors have rotated away from India towards AI-driven Asian markets such as Taiwan and South Korea.
However, with Indian equities now trading at a rare valuation discount to global markets, the combination of improving fundamentals, more attractive valuations and diversification benefits is becoming increasingly compelling.
Since the outbreak of the Gulf conflict in late February, energy stocks (dark blue line) have comfortably outperformed the broader global equity market (light blue line), benefiting from the sharp rise in oil prices (red line).
However, as the chart shows, their gains have been relatively modest compared with those of the underlying commodity.
This divergence suggests investors remain sceptical about the sustainability of elevated oil prices, particularly as supply constraints begin to ease.
Higher operating costs and concerns over the wider economic impact of expensive energy have also tempered enthusiasm for the sector.
Yet should oil prices remain elevated, energy companies could enjoy a sustained boost to earnings, cash flows and dividends.
This creates scope for further outperformance, as equity valuations potentially catch up with the improved profitability of the underlying businesses.
Bentley Reid & Co (UK) Limited (FRN 572096) is authorised and regulated by the Financial Conduct Authority.
This communication is provided for information purposes only. Bentley Reid believes that, at the time of publication, the views expressed herein represent fair opinion; however, no assurance can be given that any illustrated or referenced performance will be achieved or repeated. All data and graphical information are believed to be accurate at the time of capture but may be subject to change and may not reflect current conditions. Fluctuations in exchange rates may cause the value of investments to rise or fall.
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