Trends Influencing the Global Equity Market

Global markets enter November in a fog of momentum and fragility. The AI-fueled rally, now adding over $17 trillion in market value since April, remains the dominant driver — reinforced by Amazon’s $38 billion OpenAI partnership and renewed hyperscaler spending. But market breadth is thinning: over 300 S&P 500 stocks fell even as the index rose, underscoring the growing concentration and selectivity of this rally. Policy uncertainty is the other defining feature. The Fed’s stance is blurred by mixed messages — dovish voices like Governor Cook contrasting with hawkish comments from Goolsbee. The committee now expects a pause in December, followed by three cuts in 2026, with focus shifting from inflation to labor market weakness. The Bank of England could surprise dovish as growth falters, while the ECB sits comfortably in its “sweet spot” — 2% inflation and steady growth. Regionally, the U.S. shows late-cycle fatigue: inflation expectations remain above 3% due to tariffs, and employment data hint at softness. Europe’s modest recovery continues, Japan benefits from fiscal stimulus under PM Takaichi, and China’s growth slowdown persists but policy support is intensifying after weak PMIs. Investment stance: – Neutral on global equities, favoring quality, AI infrastructure, and disciplined capex spenders. – Underweight fixed income due to tight spreads and limited upside; maintain intermediate duration. – Overweight Asia IG credit; underweight EM ex-Asia HY for risk control. – Overweight cash tactically to deploy amid policy and geopolitical uncertainty. – Gold remains a structural hedge despite short-term pullback, supported by strong central bank demand. Regional equity views: – U.S.: Cautious; valuations stretched, stagflation risk rising. – Europe: Slight underweight; recovery lacks earnings support. – Japan: Neutral; fiscal policy supportive but valuations high. – China: Overweight; AI and trade détente support sentiment. – India: Slight overweight; domestic consumption resilient. October’s winners — Korea, Taiwan, India, and gold — highlight where momentum still aligns with fundamentals. Yet with valuations elevated and policy clarity scarce, the CIO message is clear: stay constructive, but disciplined. “Markets may run on stories, but portfolios should run on discipline.” The bucket remains ready — but for now, it stays just outside the rain. #Nomura #CIO #Macro #Markets #AI #Equities #FixedIncome #Gold #Fed #ECB #China #Japan

The decade-long dominance of US equities is fading. For much of the last 15 years, investors were rewarded for concentrating in US large-cap tech. But in 2025, global equities are taking the lead. China (+14%) and Europe (+8%) are outperforming the US year-to-date, marking a shift in market leadership. Advances in Chinese AI have fuelled a 35% surge in tech stocks since January, while European equities are benefiting from easing geopolitical risks, policy tailwinds, and sector rotation away from overvalued US tech. As the market narrative broadens, investors are rediscovering the value of diversification. For investors, this shift is more than just a short-term anomaly. The past decade’s playbook—overweighting US tech—may no longer apply as market leadership rotates across geographies, sectors, and themes. Stock-picking is back, and fundamentals are once again driving returns.

Global equity indexes are now heavily shaped by a small set of multi-theme giants, with AI emerging as the defining force behind regional performance gaps. This rising thematic concentration strengthens market leadership but also heightens fragility: if AI sentiment softens and breadth doesn't improve, the influence of these megacap clusters could amplify volatility across regions and benchmarks.  Major global indexes have seen rising thematic concentration, with many holding over 20% exposure to at least one powerful secular-growth theme. AI concentration risk is high: 43% of MSCI US weight is in AI (BAIAT) stocks. AI exposure is 70% in Taiwan, 44% in Korea, 32% in China and 10% in Canada. Rising AI concentration in major global indexes puts greater focus on AI sentiment, which may be a key factor in determining country-index winners and losers in the year ahead. Taiwan, the US and Korea are most sensitive to AI shifts, rising and falling the most during AI rallies and retreats. Over the past two years, each 1% that the Bloomberg AI benchmark beat global equities corresponded to gains of about 0.97% in Taiwan's index, 0.83% in the US and 0.67% in Korea. Japan, Latin America and Canada also show notable links, but with weaker sensitivities (Japan near 0.37%, Canada 0.27%). Europe and China show no statistically significant AI relationship, offering potential insulation but also limited upside from AI-driven rallies. Bloomberg Intelligence Breanne Dougherty

Global markets are at an inflection point, shaped by bold #fiscal shifts, diverging corporate #earnings, and #China’s evolving recovery. Here’s what’s driving the outlook ⬇️ 🇩🇪 Germany: From Austerity to Big Spending? The SPD and Union have proposed exempting defense spending >1% of GDP from the debt brake and creating a €500bn infrastructure fund—a clear shift toward fiscal expansion. If implemented swiftly, this +2% of GDP package could lift Germany out of stagnation, adding +0.5% GDP in 2025, +2.1% in 2026, and +2.4% in 2027. But risks remain: inflationary pressures, a rising deficit (-3.5%), and debt climbing to 68% of GDP by 2027. Markets are responding: the German 10Y yield saw its biggest jump in 30 years, surpassing 2.9%—a sign of growth expectations rather than credit risk. However, Germany still needs deep structural reforms in pensions, decarbonization, labor markets, and taxation to sustain long-term competitiveness. 📉 Q4 Corporate Earnings: The Transatlantic Gap Widens Despite a tough macro backdrop, global Q4 earnings surprised to the upside (revenues: +2.6% y/y, EPS: +10.7%). But performance is increasingly uneven: US companies outperformed (EPS: +17.1%), driven by strong consumer demand, rapid tech adoption, and lower energy costs. The challenge? Tariffs are set to bite, leading to a sharp downward revision of Q1 2025 EPS forecasts to +8% (from +12.8%). European firms saw modest growth, finally breaking six quarters of decline, but Q1 2025 earnings forecasts have been slashed to +0.9% (vs. +7% a year ago), as regulatory pressures mount. 🇨🇳 China: A Lasting Turning Point? China has emerged as the best-performing major equity market in 2024 (+13.1% YTD), but the bull case depends on fundamentals. Despite a RMB2.9trn stimulus package, uncertainties persist over US tariffs and geopolitical tensions. Authorities have reaffirmed a 5% GDP growth target for 2025, but we expect +4.6% in 2025 and +4.2% in 2026, assuming further policy easing. Consumer sentiment is stabilizing, but more stimulus will be needed to drive sustained recovery. The next 12 months will be pivotal as Germany redefines fiscal policy, the US and Europe navigate earnings headwinds, and China aims to cement its recovery: https://lnkd.in/eTnnbZeT #FiscalPolicy #Germany #CorporateEarnings #Tariffs #Ludonomics #AllianzTrade #Allianz

It’s been a wild first half of the year — from DeepSeek to the Liberation Day correction, and German fiscal stimulus to chatter about a shadow Fed chair. Despite the noise, U.S. markets hit all-time highs, the USD weakened, and many investors stayed risk-on. Here are four things I’m taking with me into the second half: 1. Policy goals are driving market outcomes. Markets appear to be aligning with the administration’s goals — weaker USD, lower yields, and deregulation are showing up in asset prices. Over the long-term, we believe equity markets will still be driven by earnings, capex, U.S. growth, and Fed policy. 2. Higher for (how much) longer? Powell, for his part, has committed to remaining data dependent and cutting when it makes sense to, despite noise to drop rates soon. But my big learning for H1 was that bond markets will react not just to inflation and deficits, but to perceived threats to Fed independence. 3. Diversification is back — just not in the traditional way. Returns came from everywhere: EM, Europe, gold, and high yield — not just long duration or U.S. equities. Put together, the 6-month snapshot argues for global, multi-asset diversification: equities outside the U.S. cushioned the tariff shocks, core bonds helped offset equity drawdowns, and real-asset winners like gold provided a hedge against policy uncertainty.   4. USD weakness is a feature, not a bug. The unwinding of U.S. exceptionalism was a defining theme this year. We believe the dollar’s decline is intentional and necessary to rebalance U.S. deficits — and it’s fueling global equity and commodity strength. While U.S. equity flows are slowing on the back of strong performance abroad, they still are firmly positive.

The View from the Trenches: 5 Emerging Themes One of the benefits of meeting with dozens of equity hedge funds, multi-strats, and pension funds over 2025 is that it provides a unique vantage point to understand whats really happening on the ground. It is easy to get lost in the noise, so I have tried to tease out the main learnings and themes from ~100 meetings this year. 1️⃣ The "Quantamental" Shift: The race to adopt quantitative methods is accelerating. Whether it is factor models , opitmizers or alternative data, the industry is moving past pure fundamental investing. One large fund told me they are currently testing 43 different datasets simultaneously—data teams generally are overwhelmed. 2️⃣ The Risk Gap: Investors are struggling to connect ex-ante risk with ex-post performance. In a volatile world of tariffs and inflation, returns are increasingly driven by risks that traditional factor models just aren't catching. 3️⃣ Multi-Strat Correlations: Large multi-strats are grappling with rising correlations between their L/S equity books and macro books. When stock picking starts moving in lockstep with macro trends, the critically important diversification benefit starts to disappear. 4️⃣ Construction is King: "Portfolio Construction" is no longer just about risk reduction; it is where risk meets alpha. Optimizing factor exposures is becoming the lowest-hanging fruit to improve performance without changing stock selection. We are seeing more dedicated portfolio construction teams across the industry. 5️⃣ Bleeding Alpha to the Macro Gods: The era of stable rates and inflation is over. Traditional equity models are struggling to adapt to a world where equity funds have also become macro funds. Without visibility on these exposures, it is impossible to separate stock-picking skill from luck. As one CRO admitted regarding their L/S fund: "We don't really know what's in there". More and more equity funds realise they need to do something about attribution and about invisible risk draining their alpha. This is also becoming a simple governance issue. Any company sits in the local and global economy. It has BOTH idiosyncratic risk and environmental risk (macro). It is no longer enough to ignore the latter and just hope for the best. "Probably fine" and "should be ok" are not the best strategies. In terms of markets, i have no idea of outcomes in 2026. No macro forecast here ! What I do know is that stronger processes rooted in data-driven approaches will be needed to build more resilient portfolios. #hedgefunds #assetmanagement #factorinvesting

As European and Asian asset managers return from summer and restart investment committee discussions, one thing is clear: the decade-long habit of allocating heavily into US assets may be at a turning point. Geopolitics is accelerating the shift. President Trump’s recent confrontational stance toward European leaders has left many questioning the stability of the transatlantic relationship. At the same time, Asia is reassessing its approach, as the US is no longer seen as the unquestioned reliable partner it once was. For years, TINA - “There Is No Alternative” drove flows into the US. That dynamic is fading. With sovereigns preparing to unleash a wave of fiscal spending at home, capital is likely to be redirected into domestic opportunities. The implications? Greater diversification away from US-centric portfolios Stronger local market development in Europe and Asia A potential rebalancing of global capital flows not seen in decades We may be entering an era where capital allocators no longer ask “Why move away from the US?” but rather “Why stay concentrated there?”

In our latest Global Strategy Paper, "Investing in Everything, Everywhere, All at Once”, we map out the 'World Portfolio'—the sum of all investable assets globally, which we estimate at roughly US$250 trillion (or 200% of world GDP). The World Portfolio acts as a de facto benchmark for global investors, and its composition reveals powerful macro trends. Currently, we see a heavy dominance of US assets in both equities and bonds, a rising weight of equities relative to bonds since the GFC (but not at Tech Bubble levels yet), and growth in alternatives. These are not just abstract trends; they are directly reflected in how investors are allocating their capital today. Why does this matter? Simply following this benchmark is not always a good idea. Our analysis shows that the World Portfolio has seldom been optimal and its performance varies materially with structural macro regimes. Its current concentration in US assets, while a tailwind in recent years, now presents significant risks from a diversification and valuation standpoint. This report provides a framework for investors to actively improve upon this global benchmark. We offer strategies for: 1. Strategic Tilting: Actively managing the equity/bond/Gold mix to navigate different economic environments. 2. Managing US Dominance: Assessing the sustainability of US outperformance and managing the associated FX risks for non-US investors. 3. Broader Diversification: Harvesting benefits from smaller assets and alternatives that are often missed by value-weighted benchmarks. In today's complex market, understanding the limitations of global benchmarks is crucial for effective strategic asset allocation. #assetallocation #gsmacro Read the report here: https://lnkd.in/eGxqZizt

The Equity Risk Premium Has Vanished: What Does This Mean for Investors? In recent weeks, a notable shift in market dynamics has occurred. The equity risk premium (ERP)—the additional return investors demand for taking on the risk of equities over safer Treasury bonds—has entered negative territory for the first time in years. 📉 According to the data, as of January 23, 2025, the S&P 500 equity risk premium has fallen below zero. This rare phenomenon is a result of higher Treasury yields coupled with elevated equity valuations, signaling a potential turning point for risk-asset investors. 🔑 Key implications: 1. Equity Valuations at Risk: Elevated valuations in the S&P 500 are facing increased scrutiny as investors may demand higher returns to compensate for the risk. 2. Treasury Yields Rising: With benchmark yields climbing, the risk-free rate now offers a competitive alternative to stocks for many portfolios. 3. Investor Sentiment Shift: Historically, a negative ERP reflects a higher probability of market corrections as the reward for equity risk diminishes. 🧐 The last two decades of ERP trends, as shown in the graph, highlight how rare and impactful this shift is. From the peaks in the post-GFC recovery to the volatility of recent years, the ERP has been a crucial guide for asset allocation strategies. 🔍 • Are we at the cusp of a broad equity market revaluation? • Will higher Treasury yields continue to pressure equity markets in 2025?

The next capital shift is quietly tilting toward Africa While Wall Street celebrates record highs, Deutsche Bank is warning of a bubble echoing 1999 and 2007. Margin debt has surged past $1 trillion. Equity markets are overheated. And yet—something far more interesting is happening beneath the radar: Capital is rotating, and Africa is emerging as a preferred destination. Here’s what global investors are starting to realise: 1. International flows are gaining momentum Over $116 billion has moved into non-U.S. equities in 2025, with growing appetite for overlooked high-growth markets. Africa is regaining strategic attention—particularly in sectors like energy, agriculture, fintech, and infrastructure. 2. Equity capital markets are opening up Citigroup has just revamped its ECM team with new leadership covering the UK, EMEA and Africa. This signals greater capacity to underwrite IPOs, private placements and cross-border listings from the continent. A major opportunity for well-prepared African businesses. 3. ESG financing is shifting gears With net-zero roadmaps now in place, banks and funds are actively seeking compliant projects in renewables, regenerative agriculture, and green metals. Africa holds unmatched potential here—but only for projects that meet global standards and impact criteria. 4. The weakening dollar is easing pressure As the USD softens, African borrowers with dollar-denominated debt benefit. FX-aligned infrastructure and export-linked ventures now have more room to attract global interest under better terms. 5. Commodities are back in favour As investors reduce exposure to speculative tech, there’s a strong pivot toward hard assets. Iron ore, vanadium, cobalt, rare earths—strategic minerals sourced largely from African nations—are regaining institutional appeal. In summary: Global market volatility = risk for some But for Africa, it = opportunity This is the time for: • Founders to raise smarter, with structured instruments and measurable impact • Family offices to deploy capital with patient, inflation-resilient strategies • Governments and DFIs to issue blended instruments that unlock job creation Africa is not a charity case. It’s an alpha case. We don’t need sympathy. We need smart capital, structured vehicles, and bold execution. I’m seeing it happen across our portfolios. Are you ready?