Investors are rotating from US to rest-of-the-world equities

George Lagarias, Chief Economist at Forvis Mazars said:

“The world is as uncertain as it was in the depths of the pandemic.  The new US administration has applied a shock to the global economic and diplomatic system, far beyond anything we have seen. In addition, Messrs Trump and Bessent warned of economic and investment volatility, but what do portfolio managers actually translate this to?

For one, uncertainty translates into asset volatility and diverging views between equity and bond markets. Bond yields in the US dropped and rose in the EU, as America sees a challenge to its growth, whereas the EU sees Germany potentially out of recession. Meanwhile, equity investors took the opposite route, rotating from US to Rest-of-the-World equities, from growth to value, from cyclical to defensive and from Developed to Emerging Markets.

Adding to these risks on a more systemic basis is deregulation. While this was expected, the US government jumped the legislative gun and began weakening regulators. Defanging agencies wholesale increases the probability of risks conflating, creating market Black Swans. However, the price of uncertainty is not too high – yet.”