Regional rotation

Policy uncertainty is a greater feature of the new US Administration than expected, and has begun to weigh on sentiment for consumers, corporates and investors. Trump’s stance on Russia-Ukraine has forced Germany’s hand into a more aggressive fiscal stance than we have arguably ever seen, improving sentiment around the European region and highlighting its relatively cheap valuation. While there are question marks over the multiplier effect associated with defense spending and the timing of fiscal spending’s impact on the economy, these elements may create unique multi-year opportunities for certain sectors and corporates. Meanwhile, China has seen an inflection in equity market sentiment helped by technological developments like DeepSeek’s latest Large Language Models and a sense that policy action from the government is close by if required. The prospect of greater competition within AI has raised broader questions over the returns that will accrue to US players spending ever-increasing sums on capital expenditure, and has also weighed on US equities.

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