Shifting Tides: Why Investors Are Moving Beyond U.S. Markets

Emerging markets are gaining momentum just as cracks form in the U.S. economy. Are you positioned for the next wave?

A New Playbook in Motion

Just a few months ago, sticking with U.S. stocks felt like the safest bet.

Now, the tide is turning—and fast.

The MSCI USA Index has dropped over 10% from its highs, while the MSCI Emerging Markets Index has remained surprisingly stable.

Investors are beginning to ask: if the U.S. engine is slowing down, where should the next opportunities come from?

At the same time, fresh economic data points to a worrying slowdown in American business activity.

The latest S&P Global Flash PMI shows the slowest growth pace in 16 months, with service sector weakness leading the slide.

Inflation pressures, fueled by new tariffs and rising input costs, are also refusing to back down.

All signs point to one thing: it’s not just a blip—it’s a meaningful shift. And investors who adjust early could get ahead of the pack.

Cracks in the U.S. Foundation

Under the surface, the numbers from this past week tell a clear and concerning story:

• S&P Global Flash PMI Composite Output fell to 50.4 in April 2025, barely above contraction levels.
• Service sector output declined sharply, offsetting a modest pickup in manufacturing.
• Selling prices for goods and services accelerated at the fastest pace in more than a year.

This matters because the U.S. economy leans heavily on consumer spending and services. When services slow—and prices climb—corporate profits and consumer sentiment both take a hit, creating a cycle that's hard to reverse.

At the same time, emerging markets are holding up better than expected. China’s stimulus, India’s resilient domestic demand, and Brazil’s commodity strength are helping them stay steady.

Investors are noticing. According to Bank of America’s April survey, fund managers have significantly reduced their allocation to U.S. equities, with a net 36% underweight—the most bearish stance since May 2023.

The writing is on the wall: capital is beginning to seek new homes.

Why It Matters

These shifts aren’t just about numbers—they’re about psychology and positioning.

When U.S. growth slows but inflation stays stubborn, the traditional playbook breaks down.

Investors look for economies with lower valuations, younger demographics, and stronger local growth.

Emerging markets historically shine in these periods because:

• The U.S. dollar weakens or becomes volatile, boosting returns overseas.
• Global inflation benefits resource-rich economies.
• Younger, faster-growing populations drive internal demand.

Right now, emerging markets are trading at a 34% discount to developed markets—near a 20-year high.

If you’re still playing by yesterday’s rules, you could be missing tomorrow’s opportunities.

This isn’t about abandoning the U.S.—it’s about building a smarter, more resilient portfolio for what’s next.

How to Position for What’s Next

Adapting to this new environment doesn’t require radical changes—but it does require thoughtful moves.

Diversify beyond U.S. equities. Adding emerging market ETFs like VWO or IEMG can help you tap into economies driven by different forces.

Focus on local demand stories. Markets like India and Indonesia are seeing strong domestic growth—less vulnerable to U.S. slowdowns.

Stay selective within emerging markets. Not all markets are equal. Prioritize countries with stable governments, positive demographics, and manageable debt.

Balance with inflation protectors. Real assets like commodities, infrastructure, and dividend-paying stocks can help defend against rising prices.

Manage currency risks smartly. Using hedged ETFs or diversifying across regions can help smooth returns.

Small shifts now can make a big difference later—especially when the landscape is changing underfoot.

What’s Your Next Move?

Are you positioning for a world where growth is coming from new corners—or staying anchored to what’s familiar?

How are you adapting your strategy with emerging markets now in focus?

I’d love to hear your thoughts—reply and share how you’re approaching this evolving landscape or share your thoughts with us here.

Before You Go

Markets evolve. Leadership rotates.

The greatest risk isn't missing the next rally—it's staying stuck in the past while the future unfolds somewhere else.

Stay alert, stay curious, and stay nimble. We're here to help you decode every step of the journey.

Until next time—stay steady, stay sharp, and keep moving forward.

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