With the US exceptionalism narrative under scrutiny, should America remain a South African investor’s preferred destination for global exposure?
“An economy and businesses that seem to defy gravity with sustained growth despite various headwinds have fuelled the US exceptionalism narrative,” says Mike Adsetts, global chief investment officer at Momentum Investments.
“However, there is now more nuance in this term, with talk of US corporate exceptionalism alongside the mounting US debt pile, inflation and economic headwinds.”
David Rees, head of global economics at Schroders, highlights concerns about the impact of tariffs.
“The deals struck so far imply that the US effective tariff rate will eventually be at about 17% rather than the 12% we had previously assumed. And with trade deals with China and the EU not yet finalised, the risks to the tariff outlook are probably to the upside.”
As the “Trump Volatile World” scenario plays out, bringing a mix of pro-growth measures from fiscal stimulus and deregulation, and significant uncertainty from tariffs and retaliatory actions, local investors looking for global exposure will need to consider carefully where they allocate their capital.
Despite inflationary pressures in the US, which will likely remain elevated, Rees is optimistic about global growth prospects for 2026 and expects developed markets to exceed expectations.
Agility and diversification with a broader allocation across regions, sectors and asset classes will remain essential when navigating these risks and capitalising on the opportunities.
“Though some parts of the US market are eye-wateringly expensive, especially the mega-cap tech stocks, there are pockets of more reasonable value,” says Adsetts. “So I find it difficult to justify a significant underweighting to US equities, though some reduction in exposure may be warranted.”
Outside the US, the eurozone is poised for growth beyond 2025, with huge stimulus on the way in Europe, beyond the Ukraine rebuild project, wider deregulation and a watershed moment in Germany with unprecedented fiscal loosening.
“There is a reasonable case for European equities based on valuation and the expected uplift in growth led by the lifting of the fiscal anchor in Germany, which has been very conservative about raising debt in the past,” says Adsetts.
Rees is also positive on the cyclical story in Europe. “And the UK should continue to chug along as it pushes up against capacity constraints.”
Among emerging markets, the China thesis is developing positively
Alec Cutler, portfolio manager at Orbis, identifies national security as an important theme as it has re-emerged as a strategic priority for Europe.
“The region has been galvanised to boost defence spending and infrastructure investment in response to growing geopolitical risks and a requirement to reduce reliance on the US.”
The need to secure energy supply is another tectonic shift under way in Europe that Cutler believes presents underappreciated and mispriced opportunities with plenty of runway.
“As governments confront the hard realities of national resilience, energy is proving just as urgent and arguably even more fundamental than defence spending. Investor sentiment has shifted from a strong focus on renewables towards a broader appreciation for what’s practical and scalable.”
According to Cutler, this reordering of national priorities marks a structural reset, not a passing phase.
“As capital flows back to the foundations of each nation’s needs, global investors should seek opportunities where solid fundamentals and resilient demand drivers are paired with compelling valuations.”
Among emerging markets, the China thesis is developing positively as shifting policies aim to boost consumption and stimulate domestic demand.
However, Rees cautions that the domestic economy in China is still mired in a deflationary housing bust. “We remain cautious on its near-term outlook.”
From an asset allocation perspective, Cutler says sovereign debt in countries such as Norway and Brazil offers better risk-adjusted return potential.
“Norway has no net debt, runs persistent surpluses and is backed by a $1.9-trillion sovereign wealth fund.”
While more volatile, Cutler says Brazil compensates investors with double-digit yields and an undervalued currency, underpinned by a credible monetary authority and export revenues less tied to global trade cycles.
“Across both, we see attractive yields in underappreciated currencies, offering diversification and a meaningful margin of safety.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.