As global dynamics shift, where do opportunities lie? Fund manager views

US exceptionalism has come into question amid the weakening dollar and its protectionist stance in the global trade network. True to expectation, Trump’s unpredictable behaviour since his re-election has brought about waves of volatility in global markets. The worry remains as to whether the shakiness of the US' position is just a feature of the Trump administration, or could lead to a more permanent structural shift and new world order.

With these, many investors are starting to rethink how much exposure they want to US assets. Even though US markets still offer relatively high Treasury yields relative to other developed market government bonds, we’re seeing capital flow elsewhere, suggesting that returns alone aren’t enough to offset growing concerns. 

The idea of “de-dollarisation” is gaining traction, but it’s not just about the dollar’s value. What really matters is how deeply the dollar is embedded in global trade and how strong US companies remain. Our stance remains that diversification should still be a mainstay in every investor’s portfolio. Rather than viewing concerns about US asset allocation in isolation, we believe it is more pertinent to frame them within the broader spectrum of global investment opportunities, both within and beyond the US.

We have compiled insights from our partner fund managers about the impacts of the ongoing global trade tensions on the US and global markets.

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The world order isn't changing…yet

This is an excerpt taken from a commentary by J.P. Morgan Asset Management published on 11 Jun 2025.

Concerns about a US recession have reduced, leading to a rebound in US equity performance in the second quarter of 2025, as the market prices out the worst-case scenario. “Sell America” is really just a sensationalist news headline. What investors could consider is to rebalance their allocation from a very overweight position in US equities.

In the near term, the US market could face further pullbacks. Corporate America is likely to experience margin pressure due to weaker economic demand, while higher tariffs and potentially prolonged elevated rates impact input and capital costs. 

Consensus earnings expectations have been slow to adjust to this outlook. Earnings growth expectations for 2025 remain relatively high at 9%, compared to the average US earnings growth of 8% over the last decade, whereas low single digits may better reflect an economy narrowly avoiding recession.

This is an excerpt taken from a commentary by PineBridge Investments published on 5 June 2025.

Investors’ concerns about capital flows rebalancing away from the US call into question a fundamental understanding of what drives markets and how they behave. Over the intermediate and long term, fundamentals drive prices, which in turn lead to flows. Flows do not lead prices. Investors typically chase returns rather than predict them accurately beforehand. Beyond short-term rebalancing of concentrated portfolios, we expect fundamentals to reassert themselves, leading to flows back into the US as its fundamentals outperform relative to most markets over the intermediate term.

The question then becomes, of course, “Why do we expect US fundamentals to outperform?” Several key factors that underpinned US exceptionalism remain fully intact and are perhaps even strengthening further. Productivity and innovation have been the hallmarks of the US economy, encouraged by a light regulatory environment with deep capital markets. Further deregulation under the Trump administration is likely and will continue to support the US’ productivity supercycle – unique among global peers – and its lead globally. The competitive landscape of the economy, across multiple sectors, rewards incumbents, who sustain higher pricing power than global peers. This, in turn, contributes to US businesses’ higher profitability, quality, and cash flow stability, giving them a competitive advantage over other markets, particularly when it comes to shareholder returns and therefore asset prices.

Overall, the policies of this US administration are a mixed bag and certainly create challenges for investors. Yet the fundamental underpinnings of US exceptionalism are robust, difficult to compete with, and unlikely to be subsumed by global competitors. Prices will follow those fundamentals, and flows will then ensue. Be wary of any purveyors of “flow-based” arguments to the contrary.

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What about the knock-on effects of tariffs on emerging markets?

This is an excerpt taken from the ‘Global Macro Shifts’ briefing by Franklin Templeton published in June 2025. 

Although terms like “de-globalisation” have been making headlines for the past few years, trade fragmentation is largely a story about the US and China. The share of most other major countries’ trade in goods and services as a share of GDP has actually increased in the past 20 years, while those of China and the US have declined. 

These increasing shares align with economic theory that international trade supports domestic economic growth. The US and China, however, have worked against this idea in favour of national security and protectionist policies. [...]

Despite the political tension between the two hubs, most peripheral countries are agnostic about political issues with regard to trading partners—they simply want to trade with the country that maximises profit.

This approach has opened up opportunities for emerging markets (EMs) within the global trade context. We highlight that such opportunities are not driven by any one country—in other words, it is not just China’s emergence as a hub that presents opportunities, but the fact that many EMs are now trading with each other as well.

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A look at the broader picture beyond trade 

China maintains a foothold against the US

This is an excerpt taken from a commentary by Eastspring Investments published in July 2025.

The MSCI China Index is up 32.2% from a year ago and 17.2% year to date*. This may come as a surprise to some, given the multiple twists and turns in the ongoing tariff negotiations with the US, and China’s still challenging economic outlook. [...]

Within China equities, selected investment themes have thrived despite the uncertainty relating to the outcome of US tariff rates, China’s lingering deflationary environment, and its property sector challenges. 

Over the last year, selected stocks linked to AI-related infrastructure and smart manufacturing (e.g. robotics, new electric vehicles) have outperformed, supported by their technological advancements. 

In addition, investor sentiment towards the innovative drugs sector was buoyed after several drug companies presented strong clinical data at the annual American Society of Clinical Oncology (ASCO) meeting in June; enhancing their international recognition and global market potential. 

Meanwhile, the new consumption theme, which focuses on products and services favoured by Chinese Gen Zs, has also fuelled gains in related stocks. As well, the RMB’s 3% appreciation against the USD since its recent low in Sep 2024, has further boosted earnings for selected stocks within the MSCI China Index.

New opportunities blossom amid reforms in Japan

The following excerpts were taken from the Mid-Year Outlook 2025 report by Eastspring Investments published in May 2025.

In early 2025, an appreciating yen and Trump’s tariffs weighed on large-cap exporters, which had led the market in the earlier two years. Meanwhile, the small caps outperformed. [...] 

Beyond tariffs, other longer-term market drivers are at play. While corporate reform is not a new narrative, the momentum – such as increased dividends, share buybacks and cross shareholding unwinds – remains strong. [...]

Japan is experiencing its highest nominal wage growth in over three decades, driven by labour shortages, easing deflation and government policy. Reflation is helping real wages to recover, supporting domestic consumption and buffering against external shocks. It is also encouraging companies to shift from cash hoarding to improving returns on equity.

India’s strength in numbers

Domestic investor flows have been resilient while foreign institutional investors turned net buyers in the second half of April. India appears relatively better positioned amid the US tariff campaign, given its large domestic economy. 

India equities also have limited exposure to US exports – aside from IT services, which is not subject to tariffs. Moreover, the fourth quarter of 2025 results season has been resilient, with minimal downward revisions. Continued RBI (Reserve Bank of India) support, sluggish oil prices and resilient domestic inflows create a favourable backdrop for Indian equities.

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The continued case for global diversification

The following excerpts were taken from the Holding Steady Amid Whipsawing Markets by PIMCO published in July 2025. Used with permission from PIMCO.

Signs of moderating inflation and economic growth have fueled expectations that central banks will continue cutting interest rates later in 2025. This could support a variety of assets, while exposing the opportunity cost of holding cash as rates decline. The ability to differentiate investments based on pricing, valuations, and risk compensation will be essential.

The private sector – think companies and consumers – has remained resilient, supporting equities and credit markets. But valuations remain historically stretched.

Conversely, the public sector – governments – remains burdened by elevated debt levels. In the US, this has driven a rising term premium, a rising risk premium to own dollar-based assets, and the relative underperformance of US credit and equities. Yet bond yields stand out as attractive relative to historical norms, offering return potential across a range of potential scenarios and risks. [...]

For investors, there are many positive takeaways from the first half of this year. We’ve seen the most punitive tariffs in recent history, as well as a large-scale conflict in the Middle East that has shaken commodity markets. And yet solid, broad-based returns have highlighted the resilience of financial markets.

But early 2025 was also a wake-up call, especially for US investors, as the rapid snapback in domestic markets masked ongoing risks and the opportunity cost of being underexposed to global markets. In an increasingly fragmented geopolitical and economic environment still rife with risk, investors should continue to prioritise diversification to help strengthen portfolios.

Tap into the expertise of Endowus and our partner fund managers

As the commentaries from our partner fund managers highlight, inflation and interest rate volatility continue to pose risks in this sentiment-driven environment. While the US remains a dominant player, other markets are establishing their own niches and presenting new opportunities for investors.

Even then, there is no telling who the next winner(s) will be, and the wins will not be evenly shared across different sectors and asset classes. The best bet for retail investors, including yourself, is to diversify your investments to capture opportunities as they emerge.

Our Flagship Portfolios exemplify this approach, having benefited thus far in 2025 from the structural asset allocation to emerging markets as well as broad geographic diversification beyond US and developed market equities.

Tapping into the deep research capabilities and vast experience of our partner fund managers, our Fund Smart platform offers a suite of funds curated by the Endowus Investment Office to provide global exposure for your unique financial goals and time horizon – explore here.

*Bloomberg. In USD terms. As of 4 July 2025.

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