Beyond U.S. Exceptionalism: Why Global Market Dynamics Matter More Than Ever

The notion of US exceptionalism has been deeply ingrained in investment thinking, but recent experience underscores the need for a broader perspective. Global markets are dynamic, and leadership is not static. By recognising these shifts and positioning portfolios accordingly, investors can build resilience and unlock growth in a world where opportunity is increasingly dispersed.

For decades U.S. equities have been viewed as the cornerstone of global investing – underpinned by innovation, liquidity, and resilience. The narrative of “US exceptionalism” has shaped asset allocation decisions for generations, with investors often defaulting to American markets as the primary driver of growth. Yet, 2025 has challenged this long-standing assumption. Recent performance trends reveal that no single market holds a permanent advantage, and understanding this shift is critical for building resilient portfolios in an era of structural change.

Historically, the US has enjoyed a unique position in global markets, thanks to its technological leadership, deep capital markets, and strong corporate governance. However, the past year has demonstrated that other markets offer attractive opportunities. Emerging markets – from Brazil to China - have delivered robust returns, while the Korea KOSPI Index surged by more than 65% to the end of November 2025, a remarkable performance that few anticipated. Even the UK, despite lacking the large IT and AI proxies that dominate US indices, has so far outperformed American equities in 2025.

Crucially, AI is no longer just a US story. China and other countries are investing heavily in AI research, commercial applications and specialised hardware. Chinese companies and research groups are developing advanced models such as DeepSeek and AI chips, while South Korea, Taiwan and Europe are major players in semiconductor manufacturing and packaging – all essential parts of the AI value chain.

These shifts are not merely cyclical, it reflects deeper structural changes in global growth dynamics. As economic power disperses across regions, investors who remain overly concentrated in US assets, risk missing out on compelling opportunities elsewhere.
 

Opportunities beyond the U.S. 

Diversification has traditionally been viewed as a defensive measure – a way to mitigate volatility and protect against downside risk. Today, it is increasingly a proactive strategy for capturing growth. By broadening exposure beyond the US, portfolios can tap into long-term trends that we believe will support returns in the years ahead.

Asia stands out as a region with long‑term growth drivers. The United Nations projects Asia will hold around 60% of the world’s working‑age population (ages 15–64) in 2030^1, supporting a sizeable labour pool and rising domestic demand. Even by 2050, its estimated Asia will still account for over half of the global working‑age population. Together with rising middle‑class consumption and technological innovation, these structural factors are driving growth across markets such as India, Korea and China. Similarly, other emerging markets offer attractive valuations and higher growth potential compared to developed economies. These dynamics helped drive strong performance in 2025 and are likely to underpin further gains as global economic leadership gradually shifts east (see Figure 1).
 

¹United Nations World Population Prospects 2024 
 

Figure 1: Market Returns so far in 2025

Within our Model Portfolios, this thesis is reflected in our positioning. Compared to many peers, we maintain lower exposure to US equities and greater allocation to Asia, emerging markets, and Europe – a strategy that has proved beneficial this year. By embracing global diversification, we aim to capture opportunities that extend beyond traditional market boundaries.

These equity trends are mirrored in currency markets, where a weakening dollar has meant investors have looked at new currencies for investment.
 

Currency Dynamics – A changing landscape

The U.S. dollar has long been considered a safe-haven currency, offering stability during periods of uncertainty. Yet the first half of 2025 saw the biggest decline in the dollar (DXY index) since the end of Bretton Woods in 1973 as investors reduced exposure to dollar-denominated assets in favour of regions with stronger growth prospects. This trend underscores the importance of currency-aware positioning in global portfolios.

As investors have focused on other regions outside the US it has helped non-US assets, but it also introduces complexity. Active management of currency exposure – through hedging strategies or selective allocation – can help mitigate risks and enhance performance. In our view, currency dynamics will remain a critical factor in portfolio construction as global capital flows adjust to shifting growth patterns.
 

Fixed Income Trends – seeking yield in a new regime

In Fixed Income markets, 2025 has been characterised by an appetite for yield amid moderating inflation. Riskier bonds – such as high yield corporates and emerging market debt – have generally outperformed their safer counterparts, reflecting investor confidence in a stabilising economic backdrop.

Our heritage in fixed income and granular approach to credit selection have enabled us to add diversification effectively. By holding more corporate and high-yield bonds alongside emerging market debt, compared to traditional government bonds, we have captured attractive risk-adjusted returns. These allocations have provided meaningful tailwinds to portfolio performance, reinforcing the value of active management in navigating a complex fixed income landscape (see figure 2).

Figure 2: M&G Hybrid Fixed Income Positioning relative to IA Mixed Investment 0-35% Equity Sector

Source: M&G MPS, FE Analytics, 31st December 2024. 

Integrated themes – building resilience in a shifting world

The performance trends observed this year are not isolated events; they reflect broader themes shaping global markets. Trade patterns have shifted, inflation is unlikely to return to pre-pandemic norms, and geopolitical tensions are more frequent. Economic growth is increasingly uneven, creating both risks and opportunities for investors.

Our asset allocation strategy integrates these realities by combining global equity exposure, currency-aware positioning and diversified fixed income holdings. We also incorporate alternatives – such as REITs, listed infrastructure, and absolute return strategies – to enhance resilience and provide additional sources of return.  This multi-asset approach is designed to deliver stability and growth in an environment where surprises are inevitable.

Looking ahead to 2026 we expect continued volatility and regime shifts. History reminds us that unusually strong returns can persist for several years, even after periods of significant change. The best strategy for investors is to remain invested, focusing on risk appetite rather than short-term speculation or market sentiment. By embracing diversification and maintaining a disciplined approach, portfolios can navigate uncertainty and capture opportunities across regions and asset classes.
 

Conclusion – Beyond Exceptionalism

At M&G our conviction underpins every decision. Through diversified equity exposure, active currency management and a robust fixed income strategy, we aim to deliver outcomes that align with the evolving global landscape. In our view, the future of investing lies not in clinging to old paradigms, but in embracing possibilities that lie beyond US exceptionalism. 

Past performance is not a reliable indicator of future performance. The value of an investment can go down as well as up and your client may get back less than they’ve paid in.