A new world order is here. Is your portfolio ready?
Global shifts are challenging US market dominance, putting diversification back in play
by IFAST RESEARCH TEAM
OVER the period from 1994 to 2024, US equities have consistently outperformed their international counterparts. For many young investors, it's hard to recall a time when the US did not dominate global markets. As a result, global diversification has long been a losing strategy for most investors.
Not this year.
The 'Liberation Day' market crash sparked by Trump's tariffs has coincided with rallies in other global markets, including Europe and China. While the S&P 500 recovered most of the losses year-to-date, the MSCI AC World ex-US Index is up more over the same period. While periods of underperformance by the US are not unusual, the gap this year has been particularly pronounced.
A New World Order is Taking Shape
For decades, there has been no bigger winner on the global stage than the US market, with its stellar performance over the years leading to an approximate 63.7% weighting in the MSCI AC World Index (as of 30 April 2025), up from 43.3% back in 2011.
And rightfully so. Investors were drawn to America's exceptionalism: Its technological dominance, deep and liquid financial markets, leadership in free trade, willingness to underwriting global security and a government historically seen as a wise steward of the economy.
However, president Trump's erratic policies — including his on-again, off-again tariff announcements and escalating trade tensions with China — along with his transactional approach to diplomacy, suggest a significant shift in America's position on the world stage. This has prompted the rest of the world to diversify trade partners, forge new alliances and pursue long-delayed economic reforms to boost growth and economic resilience.
The European Union (EU), for instance, has launched a charm offensive to diversify its trade alliances in Asia and beyond. The bloc has resumed long-stalled negotiations with several countries, including India, Malaysia and Thailand.
The clearest sign of the EU's renewed urgency is its revived deal with The Southern Common Market (MERCOSUR), a South American trade bloc that includes Brazil and Argentina. After 25 years of delay, an agreement was finally reached in December. While major European countries such as France and Poland remain opposed, Trump's tariffs could push them towards ratification. Austria, a staunch critic of the deal, has already abandoned its long-standing resistance to the trade agreement.
Furthermore, with the US now stepping back from European security, the continent has significantly ramped up its defence spending. Even German lawmakers have voted to loosen the purse strings, allowing for a huge increase in defence and infrastructure investment — a seismic shift for a country traditionally known for its pacifism and fiscal restraint. The recently concluded UK-EU deal has also drawn a line under Brexit, signalling the start of a much closer relationship.
Changes are Afoot in China
Five years ago, regulators in China launched a sweeping crackdown on technology companies, casting a chill over the private sector. Now, the mood is shifting. Amid China's economic challenges, the government has recognised that revitalising the private sector is crucial to achieving an economy recovery — a task made even more urgent by Trump's tariff war. President Xi Jinping's handshake with Jack Ma — widely seen as the face of China's private sector but sidelined by authorities since the crackdown — at a symposium this year is the surest signal that the party wants the private sector to thrive again.
China has also intensified its efforts to steer the economy toward a consumption-led growth model. A raft of stimulus measures, coupled with a revival in consumer and business confidence, is laying the groundwork for a sustained recovery. The government's strategic focus on artificial intelligence (AI) is also providing new momentum for tech leaders. Meanwhile, the recent revival of China's economic dialogues with Japan and South Korea — both of which have aligned more closely to the US in recent years — suggests
that regional powers are reassessing their relationships in response to Trump's tariff-induced uncertainty.
At the same time, the economic transformation in Japan continues, with inflation, wage increases and interest rate hikes all becoming entrenched. A virtuous cycle of rising wages and prices will stimulate consumption and capital expenditures, opening up a pathway for stronger economic growth in the longer term.
Besides, Japan has shown that it can and will step up to provide international economic leadership. In the absence of the US, Japan has picked up the mantle of leadership in the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). As the US retreats from its traditional role as champion of free trade, Japan will likely step up to fill the void and provide trade leadership together with other open-market allies.
As a new world order takes shape, the global economy likely to become more balanced, with Europe and Asia shouldering more responsibilities for driving growth and providing international leadership. Against this backdrop, diversification has taken on added importance in our portfolios.
An Unprecedented Level of Uncertainty Persists
Another reason for diversification: A great deal of uncertainty persists.
Start with the tariffs. In just a matter of days, Trump's Liberation Day tariffs have injected the global economy with extraordinary levels of volatility and uncertainty. Trade decisions — along with a slew of other major policy decisions — are now made on Truth Social, often catching even his own advisors off guard.
While the tariffs have since been paused, they have not been cancelled. The outcome of ongoing trade negotiations remains uncertain and there's a possibility that the punishingly high tariff rates could be reinstated once the deadline passes. The situation looks increasingly fragile.
As if that weren't enough, the legal wrangling over the tariffs have added yet another layer of uncertainty. Most recently, a US trade court blocked the tariffs, ruling that Trump had overstepped his authority — only for them to be reinstated a day later, pending the appeal process. Trade talks will now be complicated by doubts over the administration's authority to follow through on its threats. Rather than offering relief, the development has introduced new complications at the worst possible time. Besides, even if trade deals are struck before the deadline, there's no guarantee they will hold. Given the unpredictable — and often arbitrary — nature of Trump's decision-making, he could very well renege on these deals.
With no real clarity ahead, U.S. businesses are faced with an unprecedented level of uncertainty, which has been further compounded by other factors.
Lower Market Correlations Help Enhance Diversification
As a risk-mitigation strategy, diversification only reduces volatility if the markets involved have low or negative correlations. If all markets move in lockstep, it doesn't matter how many geographic regions you invest — diversification won't reduce risk. This has certainly been the case over the past two decades, as correlations between US and non-US stocks have risen significantly. In other words, most international markets have moved in tandem with the broader US market.
To conclude, we're not suggesting an end to US exceptionalism. The US remains the largest and most liquid market in the world. It is also home to many high-quality companies that are dominant in the digital economy and semiconductor space. While it might be easy to boycott a company like Tesla Inc due to the availability of alternatives, it's much harder to avoid companies like Google LLC or Nvidia Corp. Therefore, maintaining exposure to the US remains important. However, for investors who already have a substantial US allocation, a global ex-US exchange-traded fund (ETF) can provide substantial diversification benefits.
The views expressed are of the research team and do not necessarily reflect the stand of the newspaper's owners and editorial board.
This article first appeared in The Malaysian Reserve weekly print edition
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Star
38 minutes ago
- The Star
Two days of terror: How the Minnesota shooter evaded police and got caught
NEW HOPE, Minnesota (Reuters) -Vance Boelter's disguise wasn't perfect. The silicone mask was somewhat loose-fitting and his SUV's license plate simply read "POLICE" in black letters. But it was good enough on a poorly lit suburban street in the dead of night. At 2:36 a.m. on Saturday, 30 minutes after authorities say Boelter shot and seriously injured Minnesota State Senator John Hoffman and his wife, he paused behind the wheel of the SUV near the home of another senator, Ann Rest, in the city of New Hope. The SUV was stocked with weapons, including AK-47 assault rifles, as well as fliers advertising a local anti-Trump rally scheduled for later Saturday and a written list of names of people he appeared to be targeting. Senator Rest, prosecutors would later say, was among those Boelter set out to kill on June 14. As Boelter sat in the SUV down the street from Rest's home, another police car - this one an actual police car - approached. A female officer from the New Hope police department, after hearing about the Hoffman shootings, had come out to check on Rest. Seeing the SUV, complete with flashing lights and police-style decals, she believed the man inside was a fellow officer. But when she attempted to speak to him - one officer greeting another - she got no response. Instead, the man inside the SUV with police markings simply stared ahead. The New Hope officer drove on, deciding to go ahead and check on Rest. Rest would later say the New Hope officer's initiative probably saved her life, an opinion shared by New Hope Police Chief Timothy Hoyt. "With limited information, she went up there on her own to check on the welfare of our senator," Hoyt told Reuters. "She did the right thing." The brief interaction in New Hope underscored the carefully planned nature of Boelter's pre-dawn rampage and how his impersonation of a police officer, including body armor, a badge and a tactical vest, confounded the initial attempts to stop him. After the encounter with the New Hope officer, Boelter, 57, drove away from the scene, moving on to his next target. Police would pursue him for another 43 hours. In the process, they would draw in a phalanx of state and federal agencies, in what ranks as the largest manhunt in Minnesota history and added to the sense of disorientation in a nation already grappling with protests over immigration, the forcible removal of a U.S. Senator from a press conference and a rare military parade in Washington. Federal prosecutors say they may seek the death penalty for Boelter, who has been charged with murdering two people and trying to kill two others, in what Governor Tim Walz has called a "politically motivated" attack. Prosecutors said they are still investigating the motive and whether any others were involved. Boelter has yet to enter a plea. Manny Atwal, a public defender representing Boelter, said he was reviewing the case and declined to comment. This reconstruction of the manhunt is based on court documents, statements by law enforcement officials, and interviews with a Boelter friend, local police officers, lawmakers, and residents of the impacted neighborhoods. While the events unfolded like something out of a TV crime drama, there were parallels with past shooting sprees, criminal justice experts said. James Fitzgerald, a former FBI criminal profiler, said he would not be surprised if Boelter studied a mass shooting in Canada in 2020, when a gunman posing as a police officer killed 22 people in the province of Nova Scotia. "These guys always do research beforehand. They want to see how other killers were successful, how they got caught," said Fitzgerald, who helped the FBI capture the "Unabomber" Ted Kaczynski in 1996. "And, of course, a way you're going to buy yourself some time is to pose as a police officer." HOFFMAN SHOOTING The violence began at the Hoffman's brick split-level home in Champlin, a leafy, middle-class suburb of Minneapolis. With his emergency lights flashing, Boelter pulled into the driveway just after 2:00 a.m. and knocked on the door. "This is the police. Open the door," Boelter shouted repeatedly, according to an FBI affidavit. Senator Hoffman and his wife, Yvette, soon determined Boelter was not a real police officer. Boelter shot Senator Hoffman nine times, and then fired on Yvette, who shielded her daughter from being hit. As Boelter fled the scene, the daughter called 911. The Hoffmans were on a target list of more than 45 federal and state elected officials in Minnesota, all Democrats, acting U.S. Attorney Joseph H. Thompson told a briefing on Monday. Boelter voted for President Donald Trump, was a Christian and did not like abortion, according to his part-time roommate, David Carlson. Carlson said Boelter did not seem angry about politics. Thompson said Boelter "stalked his victims like prey" but that the writings he left behind did not point to a coherent motive. "His crimes are the stuff of nightmares," he said. "His crimes are the stuff of nightmares," Thompson said. After the Hoffman's, the next address plugged into Boelter's GPS system was a lawmaker about 9 miles away in the Minneapolis suburb of Maple Grove. Surveillance cameras from the home of State Representative Kristin Bahner show a masked Boelter ringing the doorbell at 2:24 a.m. and shouting "Open the door. This is the police. We have a warrant," the FBI affidavit says. Bahner and her family were not at home. From there, Boelter moved on to New Hope and the close encounter with the officer who had dispatched to Rest's home. After that, he wasn't seen by police again until he arrived at the residence of Melissa Hortman, the top Democrat in the state House, in Brooklyn Park. Sensing that Hortman might be a target, Brooklyn Park police officers had decided to check on her. When they arrived at 3:30 a.m. they saw a black Ford Explorer outside her house, its police-style lights flashing. Boelter was near the front door. When Boelter saw the officers exit their squad car, he fired at them. He then ran through the front door on the house, where he killed Melissa and Mark Hortman, her husband. 'DAD WENT TO WAR' When Boelter left the Hortman's home, he abandoned his fake-police SUV. Inside the car, police found a 9mm handgun, three AK-47 assault rifles, fliers advertising a local anti-Trump "No Kings" rally and a notebook with names of people who appear to have been targets, according to court documents. From that point, Boelter was on the run. Little has been revealed about his movements during the period, although police say he visited his part-time residence in north Minneapolis. He also sent texts. In one, to his family's group chat, Boelter writes, "Dad went to war last night". In another, to a close friend, Boelter says he may be dead soon. Police also know that by early morning on Saturday Boelter had met a man at a Minneapolis bus stop who agreed to sell him an e-bike and a Buick sedan for $900. The two drove to a bank where Boelter withdrew $2,200 from his account. A security camera shows Boelter wearing a cowboy hat. But it took until 10:00 a.m. on Sunday for authorities to close in. Police searching the area near Boelter's family home in the rural community of Green Isle, discovered the abandoned Buick, along with a cowboy hat and handwritten letter to the FBI in which Boelter admitted to the shootings, prosecutors said. Law enforcement scrambled to set up a perimeter surrounding the area, SWAT teams and search dogs were deployed, and drones were put in the air. It was the trail camera of a resident, however, that provided the final clue, capturing an image of Boelter around 7:00 p.m., allowing officers to narrow their search. Two hours later, the pursuit ended with Boelter crawling to police. He was armed but surrendered without a fight. (reporting by Nathan Layne and Tom Polansek in Minneapolis and Joseph Ax in New York; editing by Paul Thomasch and Nick Zieminski)
Malay Mail
41 minutes ago
- Malay Mail
Pakistan to nominate Trump for Nobel Peace Prize, calls him a ‘genuine peacemaker' with ‘stellar statesmanship'
ISLAMABAD, June 21 — Pakistan said today it would recommend US President Donald Trump for the Nobel Peace Prize, an accolade that he has said he craves, for his work in helping to resolve the recent conflict between India and Pakistan. Some analysts in Pakistan said the move might persuade Trump to think again about potentially joining Israel in striking Iran's nuclear facilities. Pakistan has condemned Israel's action as a violation of international law and a threat to regional stability. In May, a surprise announcement by Trump of a ceasefire brought an abrupt end to a four-day conflict between nuclear-armed foes India and Pakistan. Trump has since repeatedly said that he averted a nuclear war, saved millions of lives, and grumbled that he got no credit for it. Pakistan agrees that US diplomatic intervention ended the fighting, but India says it was a bilateral agreement between the two militaries. 'President Trump demonstrated great strategic foresight and stellar statesmanship through robust diplomatic engagement with both Islamabad and New Delhi, which de-escalated a rapidly deteriorating situation,' Pakistan said. 'This intervention stands as a testament to his role as a genuine peacemaker.' Governments can nominate people for the Nobel Peace Prize. There was no immediate response from Washington. A spokesperson for the Indian government did not respond to a request for comment. Trump has repeatedly said that he's willing to mediate between India and Pakistan over the disputed Kashmir region, their main source of enmity. Islamabad, which has long called for international attention to Kashmir, is delighted. But his stance has upended US policy in South Asia, which had favored India as a counterweight to China, and put in question previously close relations between Trump and Indian Prime Minister Narendra Modi. In a social media post yesterday, Trump gave a long list of conflicts he said he had resolved, including India and Pakistan and the Abraham accords in his first term between Israel and some Muslim-majority countries. He added: 'I won't get a Nobel Peace Prize no matter what I do.' Pakistan's move to nominate Trump came in the same week its army chief, Field Marshal Asim Munir, met the US leader for lunch. It was the first time that a Pakistani military leader had been invited to the White House when a civilian government was in place in Islamabad. Trump's planned meeting with Modi at the G7 summit in Canada last week did not take place after the US president left early, but the two later spoke by phone, in which Modi said 'India does not and will never accept mediation' in its dispute with Pakistan, according to the Indian government. Mushahid Hussain, a former chair of the Senate Defence Committee in Pakistan's parliament, suggested nominating Trump for the peace prize was justified. 'Trump is good for Pakistan,' he said. 'If this panders to Trump's ego, so be it. All the European leaders have been sucking up to him big time.' But the move was not universally applauded in Pakistan, where Trump's support for Israel's war in Gaza has inflamed passions. 'Israel's sugar daddy in Gaza and cheerleader of its attacks on Iran isn't a candidate for any prize,' said Talat Hussain, a prominent Pakistani television political talk show host, in a post on X. 'And what if he starts to kiss Modi on both cheeks again after a few months?' — Reuters
New Straits Times
43 minutes ago
- New Straits Times
Pakistan to nominate Trump for Nobel Peace Prize
ISLAMABAD: Pakistan said on Saturday it would recommend US President Donald Trump for the Nobel Peace Prize, an accolade that he has said he craves, for his work in helping to resolve the recent conflict between India and Pakistan. Some analysts in Pakistan said the move might persuade Trump to think again about potentially joining Israel in striking Iran's nuclear facilities. Pakistan has condemned Israel's action as a violation of international law and a threat to regional stability. In May, a surprise announcement by Trump of a ceasefire brought an abrupt end to a four-day conflict between nuclear-armed foes India and Pakistan. Trump has since repeatedly said that he averted a nuclear war, saved millions of lives, and grumbled that he got no credit for it. Pakistan agrees that US diplomatic intervention ended the fighting, but India says it was a bilateral agreement between the two militaries. "President Trump demonstrated great strategic foresight and stellar statesmanship through robust diplomatic engagement with both Islamabad and New Delhi, which de-escalated a rapidly deteriorating situation," Pakistan said. "This intervention stands as a testament to his role as a genuine peacemaker." Governments can nominate people for the Nobel Peace Prize. There was no immediate response from Washington. A spokesperson for the Indian government did not respond to a request for comment. Trump has repeatedly said that he's willing to mediate between India and Pakistan over the disputed Kashmir region, their main source of enmity. Islamabad, which has long called for international attention to Kashmir, is delighted. But his stance has upended US policy in South Asia, which had favoured India as a counterweight to China, and put in question previously close relations between Trump and Indian Prime Minister Narendra Modi. In a social media post on Friday, Trump gave a long list of conflicts he said he had resolved, including India and Pakistan and the Abraham Accords in his first term between Israel and some Muslim-majority countries. He added: "I won't get a Nobel Peace Prize no matter what I do." Pakistan's move to nominate Trump came in the same week its army chief, Field Marshal Asim Munir, met the US leader for lunch. It was the first time that a Pakistani military leader had been invited to the White House when a civilian government was in place in Islamabad. Trump's planned meeting with Modi at the G7 summit in Canada last week did not take place after the US president left early, but the two later spoke by phone, in which Modi said "India does not and will never accept mediation" in its dispute with Pakistan, according to the Indian government. Mushahid Hussain, a former chair of the Senate Defence Committee in Pakistan's parliament, suggested nominating Trump for the peace prize was justified. "Trump is good for Pakistan," he said. "If this panders to Trump's ego, so be it. All the European leaders have been sucking up to him big time." But the move was not universally applauded in Pakistan, where Trump's support for Israel's war in Gaza has inflamed passions. "Israel's sugar daddy in Gaza and cheerleader of its attacks on Iran isn't a candidate for any prize," said Talat Hussain, a prominent Pakistani television political talk show host, in a post on X. "And what if he starts to kiss Modi on both cheeks again after a few months?"
