Is the end of globalisation the end of global equity investing? The follow up...

For decades, global equity investing has been regarded as a cornerstone of portfolio construction and capital growth. The idea was simple - by diversifying across borders, investors could access new opportunities, balance risks, and ride the wave of globalisation. Yet, in recent years, an unsettling question has emerged: Is global equity investing still relevant?

In July 2019, before the era of ChatGPT writing eloquent articles for all of us (while working as a Global Portfolio Manager at Fidelity International), I wrote a piece titled - Is the end of globalisation the end of global investing? In that article, I tackled this question head-on and concluded that changing winds would, on balance, provide new opportunities for global investing.

Making forecasts about the future is fun. Seeing how they played out six years later, even more so. During this period, we have seen an acceleration of de-globalisation, driven by Trump's Tariffs, as well as the various proxy wars between China and the US, which have been the most recent shots across the bow.

Over this time, US ‘exceptionalism’ has meant that, excluding the S&P 500, global investing has outperformed most country/region level investing, with the US now accounting for over 70% of the global market cap in the MSCI World index - up from 55% in July 2019 when I wrote the previous article.

However, this success is now exactly the problem. To give you a preview of my conclusion for this article, I anticipate that global equity investing (i.e., investing in funds or ETFs benchmarked to the MSCI World/MSCI ACWI/Bloomberg World/FTSE World) will face a challenging time ahead.

Below are a few thoughts on why asset allocators and investors need to rethink how a diversified active global equity strategy now fits into their portfolios.

All eggs in only one country

The mantra of “don’t put all your eggs in one basket” became “don’t put all your eggs in one country.” 

In the era of global investing, this strategy worked exceedingly well. Over the last 20 years, a global portfolio (in markets outside the US) went from being a satellite alpha and diversification driver to the core part of the portfolio, making the job of an asset allocator extremely easy. Where to allocate capital on a bottom-up basis? – Just give it to a global equity manager.

The US outperformed nearly every market, and a global portfolio with the US naturally at its core rode on the coattails and did the same. 

Currency was another natural tailwind as most global portfolios are dollar-denominated. Case in point, assets under management in the two iShares ETFs benchmarked to MSCI ACWI and MSCI World have increased from less than US$5 billion in the 2010s to over US$50 billion now.

However, with the US now accounting for over 70% of a global portfolio (and the current US administration having a professed weak dollar policy), all eggs are literally in one basket/country, and it is questionable whether the diversification or currency benefits offered back then are still available today.

In fact, an asset allocator now comparing a global fund to an active US fund (which sometimes has more than 20% of its holdings outside the US) would be hard-pressed to tell the difference.

Consequently, the choices are

1. If you believe in US exceptionalism sustaining (and there are good reasons for this, given the exceptional nature of some of the US companies), aren’t you better off investing in a US S&P benchmarked fund (ETF or active)
2. If you don’t, or need to meet your diversification objectives, doesn’t a selector now have to go back to doing the work of ‘selecting’ which sector, region or country fund meets their risk/return objectives?

While considering these questions, take a moment to examine the two charts from a 2023 LSE Research Institute paper.

The first pie chart shows the country weightings of the FT-Actuaries World index in September 1987, when Japan’s stock market was roughly equal in size to that of the US.

The second pie chart shows the country weightings of the FTSE All-World index as at September 2023, 36 years later, by which time Japan’s country weighting was only a tenth that of the US.

Geopolitical fragmentation and protectionism

Perhaps the most significant recent development undermining global equity investing is the re-emergence of nationalism, protectionism, and geopolitical fragmentation. 

Trade wars, sanctions, and political rivalry have increased barriers to capital flows and cross-border investment. When I wrote my initial article in 2019, my hope was that some of these changes were cyclical. Now, six years in, it seems a lot of these changes are structural.

Politicisation of ESG

Historically, one of the advantages of global investing was the usage of one fundamental ruler to evaluate every investment opportunity. Ultimately, any profitable investment is purchasing a future series of cash flows cheaper than its actual net present value. In this way, a global investor effectively allocates constrained capital to the opportunities offering the best risk-reward.

The rise of ESG standards has caused significant issues with this fundamental ruler.

As ESG has transitioned from niche to mainstream, discrepancies in how countries define and enforce these standards have created new challenges for global equity investors. A company may qualify as a leader in sustainability in one jurisdiction but fail to meet the criteria in another. The lack of harmonised reporting requirements and the politicisation of ESG in some markets add further complexity.

The defence sector used to be anathema for ESG investors, but European defence stocks have been some of the best performers year to date in 2025. In fact, in low-growth Europe, given the commitments made at the recent NATO summit, this might be the solitary industry in Europe that has significant growth tailwinds over the next ten years.

European banks, which had been shying away from lending to anything remotely defence-related, are now establishing specific departments to promote lending to the defence sector. On the other hand, renewables investing, which used to be the darling of the ESG-conscious investor, has come under significant pressure due to President Trump’s rollback of ESG subsidies. The politicisation of ESG standards has undoubtedly further complicated, if not reduced, the effectiveness of the global measuring tape.

China and Geopolitics

Is China investible or will it have its own Russia moment?

In purely financial terms, Chinese equities are cheap, the technology sector (when compared to the West) is undervalued, and one could argue that earnings have troughed. Western value investors in Russia made similar arguments before their equity holdings were reduced to nothing. On the other hand, China and Taiwan together account for more than 50% of EM markets. Can one truly be called a global investor if one chooses to ignore these markets, given geopolitics? China also now appears squarely in the ESG politicalisation debate, which creates its own complexities.

A stock example of this debate would be Taiwan Semiconductor (TSMC). One of the premier global companies, with amazing returns on capital, 50%+ gross margins, a high market share in leading technology, and at the hub of the entire global semiconductor industry. No company (ex maybe Nvidia) comes even close to being a direct play on the AI revolution. Yet, given its location in Taiwan, the risks to the stock are not fundamental but geopolitical – a question that any fundamental investor using only a fundamental toolkit would be hard-pressed to handicap.

Solutions?

Given these challenges, investors and asset managers are rethinking the very premise of global equity investing. Some trends are emerging:

• Regionalisation: Rather than betting on the entire globe, investors are focusing on specific regions or blocs - North America, Europe, or Asia-Pacific - where there exists greater economic alignment and shared regulatory frameworks.
• China investing needs to be considered in the context of the regional framework where your capital resides and whether you are confident that your country’s geopolitical relationships will not endanger the return of capital (forget return on capital).
• With the rise of AI, thematic and sector-focused investing continues to gain ground versus a broader, diversified global portfolio, where much of the country/sector call is based on non-financial drivers. Investing in the winners/losers of this theme probably deserves its own separate note.
• Rebalancing toward domestic markets: As globalisation recedes, a growing number of investors are returning to domestic equities, seeking growth and stability closer to home. Markets like Australia, the UK and Japan, which have been historically the most open-minded about global investing, are now, given their local market valuations, turning more inward (in some cases exacerbating the pressure on the dollar).
• For those sophisticated allocators who like building their own combination of country and sector portfolios – given the high weighting of technology in the US, an approach of the above construct would be to have a combination of a Nasdaq tech fund with your chosen mix of other country/geography which meets your risk/reward/valuation/fundamental analysis criteria.
• Creating this diversification in an active fund is tougher than selectors doing this, given that most mutual funds benchmarked to these indexes are restricted on the maximum deviation they can take from a country/sector basis by between 10-20%.
• Given this, global equity managers and product leaders need to consider changes to further increase active share so that risk constraints don’t inadvertently lead to forced capital losses.
• For my ex-global equity colleagues, I would humbly submit that now more than ever, considering the macro environment must be added to the fundamental toolkit. There is something to be said for the refrain from one famous macro manager to a fundamental equity manager: 

‘if you don’t do macro, macro does you’.

Conclusion: A new paradigm

Global equity investing, as it existed over the last twenty years, may indeed be past its best days. But investing itself is nothing if not adaptive. 

The forces of globalisation that once made the world flat are being countered by new realities: rising protectionism, technological fragmentation, and heightened political risk.

For investors and asset allocators, the challenge is to recognise these shifts, not to mourn the passing of an old paradigm, but to harness the opportunities created by a multipolar, more complex world.

My thinking is that this leads to an environment where investors need to be as agile in their country and sector selection as they were historically in alpha from fundamental stock selection.

Effectively, a more nuanced, regionally attuned, and strategically selective approach to capital deployment in an era where borders matter once more.

In the end, this paradigm shift for global equity investing should not be a lament, but an invitation to rethink, retool, and rediscover where the next wave of opportunity lies. As I wrote in my July 2019 note, skate to where the puck is going and stay open-minded!