Head of Quantitate Equity explains that tailwinds in cheaper global markets may have been sparked by the uncertainty of US policy
Markets crave certainty and US foreign policy has provided anything but since President Donald Trump took office in late January. Catastrophic tariffs on traditional US allies have been levied, walked back, levied, walked back, and levied again. The US policy of military aid to Ukraine appears to have been abandoned. Key soft power initiatives like USAID have been defunded. With America’s role on the world stage now changing the question arises of where that leaves global markets left to grapple with this change.
Arup Datta, Head of Global Quantitative Equity at Mackenzie Investments, explains that US foreign policy under Trump has largely been taken as a positive for global equity markets outside of North America. Europe’s need to rearm, China’s potential to claim a global soft power victory, and US dollar weakness relative to many global currencies have all served to buoy key global markets, many of which have outperformed US equities year to date. Perhaps most importantly, he believes investors’ need for certainty combined with the uncertain state of US policy has many investors moving their money elsewhere.
“Markets like certainty. Markets dislike chaos. And the world we are in today is not certain,” Datta says. “Chaos in the US, obviously, may lead investors to invest in markets that are less chaotic. Maybe that's a reason why, year to date, Europe, China, and other emerging markets are leading the way because it seems like there's less chaos there.”
Datta argues that some of the significant pullback in US equity markets we’ve seen over the past few weeks is due to the lack of clarity investors find in US policy under Trump. He describes the market impacts as a “self-inflicted wound.” Moreover, he notes that many global markets outside of Noth America were beginning to show increasingly attractive qualities. US policy chaos, he believes, has catalysed investors to seek those qualities now present in some global markets.
European equities have shown the strongest performance globally in 2025 so far. The STOXX Europe 600, for example, is up over 5 per cent YTD at time of writing, with the S&P 500 and NASDAQ 100 down over 5 per cent and over 7 per cent respectively in the same time period. Datta attributes this outperformance to a few key reasons. The first is simply that European stocks are quite a bit cheaper than American names. A new government in Germany promising to spend more in order to boost their economy has also been constructive for investors.
Trump policy, Datta explains, has also managed to support some European stocks. The US’ apparent decision to pull support from Ukraine and question its NATO commitments has prompted Europe to increase its military spending. While many Europeans won’t welcome this spending increase, it has served to buoy many of the industrial names found on key European markets.
Datta notes that Chinese markets may also pick up some tailwinds from shifting US policy, depending on how China plays the current scenario. Like European equities, Chinese stocks have been available at a discount as the country still seeks to manage its real estate issues. Datta, however, sees signs of that situation normalizing and notes that China may come out of its ‘penalty box’ soon.
China has also shown glimmers of reinvigoration in its private sector. Datta notes that China’s public sector has dominated affairs recently. However, the rise of Chinese AI names like DeepSeek have shown a new willingness to bring some of China’s talented engineers and professionals through the private sector.
“If they’re allowing their private sector to bloom again, as the early signs seem to show, then there would be a competition worry in the Western world,” Datta says. “They will be a force to be reckoned with, given the skillsets they have. That’s how China could perhaps turn things around with something of an assist from the US.”
Policy changes like Chinese support for its private sector or Germany’s newfound willingness to spend are not necessarily direct products of US policy. Europe’s need to rearm and China’s potential willingness to replace US soft power policies in parts of the developing world, though, can be drawn directly back to US foreign policy. That’s why Datta calls the role of US policy more of an ‘assist.’
Datta acknowledges that US policy under President Trump appears extremely liable to change. For all we know, the President could backtrack and reaffirm America’s place in the world once again. Such a change, he says, is the core risk to the ongoing rotation away from US markets towards global stocks. Looking at portfolio construction, Datta continues to focus on core diversification with a view that excess money may do better now in global markets than it had done in the US.
“I said this a year ago, and maybe I was a bit early, that you can put more money to work in less expensive markets,” Datta says. “Don’t get out of the US, but with your space cash ad to your non-US large-cap exposure. Whether it’s China, EM ex-China, Europe, or even some US small-caps. Those have all been left behind over the last ten years and some of that is playing through. Sometimes something can seem priced to perfection, and then a change here or there can make that fall and see money flow elsewhere. We’re seeing that right now.”
