The World is Changing - Are Investors Ready?

The global financial order is shifting, and investors can no longer rely on the old playbook. The Trump equity rally has reversed, U.S. exceptionalism is in question, and new geopolitical blocs are emerging. In this piece, we explore these shifts and highlight how Hundle’s positioning – overweight Europe, underweight U.S., a strategic position in gold, and an increasing focus on market-neutral strategies – has benefited clients amid the turmoil.

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EUROPEAN EQUITIES TAKE THE LEAD

For over a decade, the U.S. was the undisputed leader in global equity markets, driven by tech dominance and economic growth. That trend has now started to reverse. Most European indices are up over 12% year-to-date in dollar terms, while the S&P 500 has been flat. Germany’s DAX has enjoyed its best start since reunification.

Why? Investors have begun questioning the sustainability of U.S. valuations. The market’s extreme concentration in a handful of tech giants left it vulnerable, while Europe – long dismissed as a laggard – offered better valuations, a banking sector that thrives in a higher-rate environment, and potential fiscal expansion.

This rotation of market leadership is a reminder that the old assumption – just buy U.S. tech and watch it grow – is no longer reliable. Investors who diversified into European equities have been rewarded year to date.

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THE END OF US EXCEPTIONALISM?

For years, the U.S. seemed untouchable. Its equity market, economy, and dollar dominated. Now, all three are under the microscope.

The dollar’s reserve currency status is being questioned, as foreign central banks and investors seek to reduce their exposure to the U.S.. Trade tariffs, economic nationalism, and erratic policy decisions have driven long-standing allies closer to one another. The likes of Canada, the EU, UK and Mexico are looking to strengthen collaboration in response to U.S. isolationism. Could we be witnessing the formation of new economic bloc, one that no longer relies on Washington?

We are far from writing off the U.S. – its markets remain deep, its innovation unmatched – but the assumption of automatic outperformance must be questioned if the current policy of Trump becomes embedded in the US. For the first time in decades, investors are contemplating a world beyond the dollar.

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CHINA: THE ACCIDENTAL BENEFICIARY?

China has long sought to challenge U.S. financial and geopolitical dominance, but ironically, it is America itself that is accelerating this shift. The more the U.S. retreats from global leadership, the greater China’s opportunity to step in.

Beijing is courting trade partners spurned by Washington, offering deals to Mexico, Canada, and Europe to offset U.S. tariffs. The Belt and Road Initiative continues to expand, and China is pushing the renminbi as an alternative to the dollar in global trade.

Of course, China is not without its own challenges – debt concerns, demographic headwinds, and government overreach remain risks. But geopolitically, the world’s second-largest economy is gaining ground by default. If the U.S. voluntarily gives up its leadership role, someone will fill the vacuum.

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WHO WILL POLICE THE WORLD?

The U.S. stepping back from its role as global policeman carries profound consequences. Washington’s decision to suspend military aid to Ukraine has sent shockwaves through Europe. NATO now faces fundamental questions over America’s reliability.

In response, Europe is re-arming at an unprecedented pace. Germany is considering scrapping its debt brake to fund €500bn in defence and infrastructure. A European security apparatus – long dismissed as impossible – is now being discussed seriously and European defence stock have rallied impressively in response – with Germany’s Rheinmetall up 85% for the year to date.

Japan and Australia, too, are increasing defence spending and strengthening regional partnerships in case the U.S. withdraws further from Asia. If America is no longer the global policeman, other nations will have to step up. The transition will not be smooth but our sense is that the world is reacting fast to the new world order under Trump 2.0.

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HUNDLE’S POSITIONING: AHEAD OF THE CURVE

At Hundle, we have long emphasised true diversification – a philosophy that has proven valuable in this turbulent start to the year. The net effect for Hundle’s clients is that our portfolios have shown resilience. Gains in Europe, gold, and alternative strategies helped offset weaker areas, illustrating the merit of genuine diversification.

Equities – Overweight Europe, Underweight U.S.: Hundle has maintained an overweight to European equities for some time, based on a conviction that Europe’s relative undervaluation and cyclical upside were being underestimated. That conviction is paying off in 2025.

Equally important was our decision to underweight U.S. equities, particularly the expensive mega-cap tech segment (our US exposure was largely via the S&P 500 equal-weight index vs. the market-cap weighted index which has a larger exposure to the Magnificent 7). This wasn’t a bet against America per se, but a disciplined response to unsustainable valuations and concentration risk. By late 2024, the valuation premium on U.S. stocks (especially tech) over the rest of the world was at multi-decade highs. We believed such extremes could not last forever – and indeed, the unwinding has begun.

Gold: Gold prices have firmed up amid the volatility, as investors seek refuge from political risk, inflation worries, and potential dollar weakness. Gold serves as a hedge in multiple ways: it is a real asset that holds value when fiat currencies waver, and it’s uncorrelated to equities, providing balance when stocks falter. We saw gold as particularly prudent insurance given the backdrop of rising geopolitical tensions and central banks (including the Fed) potentially caught between inflation and growth dilemmas.

Market-Neutral Strategies: In recent months, we have been exploring market-neutral and alternative hedge fund strategies. In an environment where traditional asset classes are whipsawing based on political news, strategies that seek absolute returns with low correlation to market indices become very valuable. We have selectively allocated to these funds to act as an “all-weather” component in client portfolios. For example, when equities and bonds both sold off earlier in the year, several of our managers delivered steady gains by exploiting volatility and mispricings.

Currency: The Trump administration appears more determined to devalue the USD as part of their overall ‘America First’ approach. For that reason, we intend to hedge the USD exposure for non-USD reference portfolios going-forward.

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CONCLUSION: A NEW ERA REQUIRES A NEW PLAYBOOK

The financial order is shifting, and investors must adapt. The U.S. market is no longer the only game in town as global consumers and investors respond to Trump’s aggression, The dollar’s role as the default global reserve currency is now in question and China is positioning itself as an alternative power. Meanwhile new Western alliances are forming in response to U.S. withdrawal.

What does this mean for investors? Diversification is no longer optional – it is essential. Blind faith in U.S. assets is dangerous. The world is changing; volatility will remain high; and political risk is now a market risk. Active, flexible investment strategies will be key.

Hundle is prepared. We have positioned our clients to benefit from a more uncertain world, hedging against uncertainty, and embracing diversification.

In our view, the next decade will look different to the last. Investors who recognise this early will be the ones who thrive most in the new world order.