Schroders Equity Lens October 2026: your go-to guide to global equity markets

Higher bond yields have reduced the medium- to long-term excess return that investors should expect from equities over bonds, while emerging-market gains have been unusually concentrated.

• Over 155 years, US equities outperformed bonds by 4.8% a year, but 10-year outcomes vary substantially depending on the starting point.
• Equities have tended to outperform bonds more when their earnings yield is high relative to bond yields; this yield gap is currently low, signalling weaker relative prospects despite historical exceptions driven by strong real EPS growth.
• Equity valuations remain elevated, although trailing and forward P/Es have partially de-rated as earnings have grown; high consensus earnings expectations support equities, but the rise in bond yields has improved the outlook for bonds even more.
• Emerging-market returns are narrow: nearly half of EM market capitalisation gained more than 50% and saw 12-month forward EPS rise by more than 50%, while almost half of companies lost money and fewer than 25% outperformed.
• MSCI EM returned 24% year to date in US-dollar terms, versus only 6% for an equal-weighted index, and analyst coverage is lower outside the US, in emerging markets and among small caps.

Takeaway: Investors should demand a higher return threshold from equities as bond yields rise, and the concentration of EM performance plus weaker analyst coverage increases the potential value of selective active management, while long-term consensus forecasts remain unreliable because they use too small a sample.