MidLincoln Global Country Strategy – October 2026

Last Month Review

The reconstructed August allocation – evaluated using October 2026 outcomes – shows that prior overweights in cyclically sensitive markets struggled into the current correction.

• Norway, Australia, Ireland, Taiwan, South Korea (former overweights) all delivered negative equity and mostly negative bond returns in October, validating our subsequent shift to Neutral. The combination of weak macro scores and deteriorating equity/bond momentum meant the earlier pro‑cyclical bias was too early.
• Philippines and France (consistent underweights) continued to justify caution: ML Philippines Equity Index returned -7.03% and ML Philippines Bond Index -3.35% in October, while ML France Equity Index returned -12.06% and ML France Bond Index -9.10%. FX weakness in both cases further hurt USD investors.

Overall, the backfilled August stance was too constructive on higher‑beta markets and insufficiently aggressive on core Europe, a gap now closed by a broad Underweight tilt across the weakest macro and momentum complexes.

Core Markets

United States – Underweight

ML United States Equity Index returned -4.45% in October 2026, while ML United States Bond Index returned -3.00% in October 2026. Equities and bonds both sold off, with equities underperforming earlier‑year gains but still positive YTD versus mildly negative bonds.

Stock performance was highly dispersed: EVERPURE INC CLASS A (+46.59%) and ADVANCED MICRO DEVICES (+38.49%) led Technology on the upside, while FAIR ISAAC (-38.37%) and GEN DIGITAL (-28.89%) highlighted valuation and growth‑risk stress. On the bond side, idiosyncratic high‑yield issues such as HERTZ CORPORATION (THE) 144A 2029 (+4.91%) and MICHAELS COMPANIES INC 144A 2034 (+4.20%) outperformed, but large drawdowns in NFE FINANCING LLC MTN 144A 2029 (-33.04%) and ACRISURE LLC 144A 2029 (around -19%) underscore late‑cycle credit risk.

With a weak macro score (-1.20), negative bond momentum and limited duration protection in USD terms, we keep the United States at Underweight. Within the allocation, we use direct z‑rank stock selection to tilt toward resilient growth and balance sheet quality without changing the country stance.

United Kingdom – Underweight

ML United Kingdom Equity Index returned -7.14% in October 2026, while ML United Kingdom Bond Index returned -7.52% in October 2026. Bonds marginally underperformed equities, reinforcing the lack of defensive ballast in gilts.

GBP weakened against USD (GBP vs USD -2.63%), so FX losses compounded local equity and bond drawdowns for dollar-based investors. Stock leadership was narrow: SMITHS GROUP PLC (+6.41%) and DIPLOMA PLC (+4.66%) held up, while EXPERIAN PLC (-20.23%) and RENTOKIL INITIAL PLC (-18.83%) weighed on Industrials. In credit, MOTION BONDCO DAC 144A 2027 (+4.16%) was one of the few winners, contrasting with deep declines in VIRGIN MEDIA FINANCE PLC 2030 (-35.81%) and related structures, flagging stress in leveraged Communications.

A weak macro profile, negative momentum across both sleeves, and FX headwinds keep the United Kingdom at a firm Underweight. Given the inverted z‑rank evidence, we prefer a reverse z‑rank implementation for UK stock selection, favouring lower‑ranked names within the underweight basket.

Top Overweights

Formal Overweight stances are concentrated where macro quality is acceptable and equity momentum clearly leads bonds, supported (or at least not undermined) by FX.

• Brazil – Overweight: ML Brazil Equity Index returned +13.51% in October 2026, while ML Brazil Bond Index returned -0.32% in October 2026. Equities materially outpaced bonds, and BRL appreciation (+2.41% vs USD) further boosted USD returns. Leadership was concentrated in Financials and cyclicals (BCO BTG PACTUAL UNT SA +44.03%, LOCALIZA RENT A CAR +42.75%), while sovereign bonds such as NOTA DO TESOURO NACIONAL 2037 (+14.38%) signalled selective duration value even in a broadly flat bond index.
• United Arab Emirates – Overweight: ML United Arab Emirates Equity Index returned +1.32%, while ML United Arab Emirates Bond Index returned -1.42% in October 2026. Stable AED removed FX noise, leaving modest equity gains led by EMIRATES INTEGRATED TELECOMMUNICAT (+8.91%) and ABU DHABI COMMERCIAL BANK (+8.05%), versus mild spread widening in long‑dated project and corporate bonds (e.g., DHAFRAH PV2 ENERGY CO LLC 2053 -5.23%). The equity–bond contrast supports a pro‑equity tilt within an overall Overweight allocation.
• Taiwan – Overweight: ML Taiwan Equity Index returned +0.95%, while ML Taiwan Bond Index returned -2.91% in October 2026. Semiconductor and technology names such as GLOBAL UNICHIP (+48.75%) and UNIMICRON TECHNOLOGY (+43.99%) drove equity gains, whereas long‑dated TSMC ARIZONA CORP bonds (e.g., 2041 -5.70%) weighed on the bond index. Slight TWD strength (+0.16% vs USD) modestly enhanced USD equity returns.
• South Korea – Overweight: ML South Korea Equity Index returned -0.37%, while ML South Korea Bond Index returned +0.75% in October 2026. Sovereign bonds rallied strongly in the long end (KOREA (REPUBLIC OF) 2051 +26.79%), contrasting with flat to slightly negative equities despite winners like HANMI SEMICONDUCTOR (+32.13%). KRW appreciation (+1.12% vs USD) turned a mixed local picture into a mildly positive cross‑asset outcome, validating a balanced Overweight across equities and duration.
• Peru – Overweight (selective, USD base): ML Peru Equity Index returned -2.36%, while ML Peru Bond Index returned -3.74% in October 2026. With USD as base currency, FX did not affect performance. Equities were narrowly traded (three names) with SOUTHERN COPPER CORP (+2.89%) offsetting weakness in BUENAVENTURA ADR REPRESENTING (-9.15%). Long‑dated sovereigns like PERU (REPUBLIC OF) 2060 (-7.20%) drove bond underperformance. Any Overweight here should be tightly risk‑managed and focused on high‑quality Materials and shorter‑dated corporates.

Top Underweights

Underweights cluster where macro scores, equity momentum, bond momentum and FX are all weak and mutually reinforcing.

• France – Underweight: ML France Equity Index returned -12.06% in October 2026, while ML France Bond Index returned -9.10%. EUR weakness (-3.37% vs USD, shared across euro area) compounded both. A heavy macro drag (debt/GDP 119.12%, budget/GDP -5.94%) plus synchronized equity and bond losses justify deep underweight, with no offset from FX.
• Belgium – Underweight: ML Belgium Equity Index returned -11.46%, while ML Belgium Bond Index returned -9.27%. Bonds were again no hedge, and the euro depreciation added to USD losses. Given a negative macro score (-1.12) and the worst bond factor (-2.00), we keep exposure minimal and prefer to fund overweights such as Brazil and Korea from this bucket.
• Italy – Underweight: ML Italy Equity Index returned -8.10%, while ML Italy Bond Index returned -8.72%. With debt/GDP at 138.48% and bonds scoring -2.00, the sovereign duration profile looks particularly vulnerable. EUR weakness further penalized external returns. Italian risk remains a primary short‑duration and equity underweight source.
• Greece – Underweight: ML Greece Equity Index returned -9.37%, while ML Greece Bond Index returned -8.33%. Despite a reasonable near‑term GDP forecast (1.76%), weak equity and bond momentum plus euro depreciation argue against chasing prior months’ strong returns (equities had risen +4.20% in the prior period). The stance stays cautious.
• South Africa – Underweight: ML South Africa Equity Index returned -12.86%, while ML South Africa Bond Index returned -5.12%. ZAR depreciation (-4.02% vs USD) magnified the sell‑off. Equity weakness was concentrated in Materials (IMPALA PLATINUM -28.48%, GOLD FIELDS -28.18%), while long‑dated sovereigns such as SOUTH AFRICA (REPUBLIC OF) 2053 (-9.43%) dragged bonds. Macro imbalances (budget/GDP -6.12%) and an FX factor of -1.00 support a structural underweight.
• Mexico – Underweight (EM risk cluster): ML Mexico Equity Index returned -13.40%, while ML Mexico Bond Index returned -4.56% in October 2026. MXN weakened sharply (-6.50% vs USD), turning a local correction into a severe USD drawdown. Losses were broad‑based across Financials and Materials (GRUPO FINANCIERO INBURSA SRIES O -19.45%, CEMEX CPO -17.65%), and long‑dated sovereign bonds such as MEXICO (UNITED MEXICAN STATES) 2055 (-13.57%) underlined duration risk. The Underweight stance in the model is reinforced by this cross‑asset weakness.
• Egypt, Hungary, Czech Republic – Underweight EM satellites: ML Egypt Equity Index (-18.09%), ML Hungary Equity Index (-14.13%) and ML Czech Republic Equity Index (-13.31%) all underperformed, with parallel bond losses and currency weakness (EGP -2.88%, HUF -5.02%, CZK -4.63% vs USD). Narrow stock breadth in each (three names) and large drawdowns in long‑dated sovereign bonds (e.g., HUNGARY (GOVERNMENT) 2041 -12.46%, CZECH REPUBLIC 2044 -11.71%) confirm these as funding markets rather than risk‑taking venues.

Stock Selection Layer

Country allocation is driven solely by macro, equity momentum, bond momentum and FX. Z‑rank signals are reserved for within‑country implementation:

• Direct z‑rank mode (United States, Canada, India, Sweden, South Korea, Taiwan where applicable): Within these markets, we overweight higher z‑ranked stocks (better factor composite) and underweight lower z‑ranked stocks, while keeping the aggregate country weight at the model stance (e.g., Underweight US overall but tilted toward resilient Technology and Health Care winners like ADVANCED MICRO DEVICES and ILLUMINA INC).
• Reverse z‑rank mode (United Kingdom, Germany, Spain, South Africa, Mexico, Japan, Thailand): For markets where empirical tests show inverted relationships, we implement by favouring lower z‑rank names and under‑allocating the highest ranks within the country basket. The UK is a clean example: despite an overall Underweight, we tilt away from crowded quality and growth (e.g., EXPERIAN PLC) and toward cheaper, lower‑rank cyclicals.
• Neutral z‑rank mode (France, Belgium, Italy, Greece, Chile, New Zealand, Austria, Netherlands, Poland, Finland, Portugal, Philippines, Indonesia, Hungary, Egypt, Czech Republic, Peru, Brazil, UAE): In markets without stable empirical z‑rank relationships, we avoid systematic z‑rank tilts and rely instead on fundamental and liquidity screens, while the country weight itself remains dictated by the four‑factor allocation model.

Cross-Asset Divergence and FX Lens

• Equity vs bond behaviour: In several EM overweights (Brazil, Taiwan, United Arab Emirates), equities outperformed local bonds, making them attractive for equity‑led risk. Conversely, in South Korea and parts of EM duration, long‑dated sovereigns (e.g., KOREA (REPUBLIC OF) 2051 +26.79%) outperformed equities, arguing for balanced cross‑asset exposure.
• Developed Europe drawdown: Core and peripheral euro area markets (France, Belgium, Italy, Spain, Germany, Portugal, Austria, Netherlands, Finland) saw ML country equity and bond indices fall broadly in tandem, with bond scores near the floor (-1.80 to -2.00). This leaves little diversification benefit from local sovereign duration.
• FX as amplifier: FX weakness exacerbated underperformance in many Underweights: EUR (-3.37% vs USD), SEK (-4.78%), ZAR (-4.02%), MXN (-6.50%), NZD (-5.03%), HUF (-5.02%), CZK (-4.63%). In contrast, FX strength modestly improved returns in some Overweights such as BRL (+2.41%), KRW (+1.12%) and TWD (+0.16%). AED stability insulated UAE investors from currency noise.
• USD base markets: The United States and Peru, with USD as base, provided no FX offset; local equity and bond performance directly translated into USD outcomes. Given negative bond momentum in both, we remain cautious on duration in USD portfolios.
• Narrow leadership and concentration risks: Several EMs (Hungary, Czech Republic, Egypt, Peru) exhibit extremely narrow equity breadth (three stocks). In these markets, single‑name risk (e.g., heavy reliance on SOUTHERN COPPER CORP in Peru, or OTP BANK in Hungary) can dominate country returns, reinforcing the case for conservative sizing and preference for more diversified EM exposures such as Brazil and South Korea.

Implementation Notes