A growing backlash against American policies is driving a shift in global markets, with European equities gaining ground and traditional US dominance facing fresh challenges, says Jacob de Tusch-Lec, Manager of the Artemis Global Income Fund. For wealth managers, he explains below how and why this could signal a turning point—one that demands a reassessment of portfolio allocations and exposure to a changing economic tide.
When I was growing up in Denmark in the 70s, my friends and I would drink a local cheap imitation Coca Cola called “Jolly Cola”. In the past few weeks sales of Jolly have exploded like a pop drink you have furtively shaken before passing to someone unsuspecting.
Jolly Cola was first launched in 1959 to head off competition from US brands before they reached Denmark. It was dominant there right into the 80s. But by the turn of the millennium its market share had dropped to something like 2%. Now things are changing.
What’s shaken up Jolly Cola is Donald Trump’s threat to take over Greenland. Hurt Danes are boycotting American goods in favour of local, even if inferior, alternatives.
The Danes are not alone. Canadians are equally furious. It seems they do not want to become America’s 51st state.
Meanwhile, motorists upset at America’s treatment of Ukraine may have helped drive sales of Tesla cars down 40% across Europe in February, and by 76% in Germany.
We have to get this in proportion. There is an irony in the fact that much of the boycott movement is being organised on rapidly growing Facebook groups or X (formerly Twitter) – all global American platforms. There are just some American things we cannot live without.
But global investors must ask whether this mood change is translating to financial markets. It seems so. Tesla shares are down 26% this year[1]. Though, again, some perspective here is important – they had soared on the election of Trump and are now just back where they were last October.
Elsewhere, European banks outperformed their American equivalents by 40% in the first 10 weeks of the year. Annualising this trend you would get a 325% outperformance but that would be foolish of course!
What next?
While the US cuts public spending through Musk’s bruising DOGE regime, Germany (carrying much lower public debt than most developed countries) is considering massive fiscal stimulus, going against the classic perception of German economic orthodoxy. At the same time, Britain – Europe’s second biggest economy by GDP – is starting to engage more positively with its friends across the English Channel. There is a sense of purpose, collaboration and even optimism here. Who knew the Trump Trade would be to buy European equities?
In the US, where stock markets still look relatively expensive, policy risk has suddenly risen. So has recession risk, crawling from soft consumer survey data into hard investment and production data. Capex spending is drying up and M&A volumes are at decade lows. Companies we meet are saying they would love to invest in new production facilities but are on the sidelines now because it is not just the level of tariffs that is adding uncertainty but how they will be applied. Will it be quotas too – to stop China dumping cheap goods on the US anyway?
Rethink
Policy-induced recession is very rare, but not impossible. Global managers who have been underweight European shares for a generation are having to pause for thought as this negativity now threatens to cost them in performance. In recent years it was NOT owning tech stocks that cost performance for income- and value-focused managers. This year NOT owning any Tesla has been among the biggest performance contributors relative to our fund’s global index benchmark.
What matters here is not waves but tides; not anecdotes but fund flows. It is too early to say if the tide has turned but the signs signal it is possible.
Take the US dollar – the global reserve currency. Even with US debt at more than 100% of GDP, America could afford to continue printing dollars to meet global demand because global trade centres on the dollar.
In a world of deglobalisation, maybe that now merits reconsideration. In times of uncertainty the dollar usually strengthens, but this year it has weakened against all other developed market currencies, except Canada’s. The euro was up 5.7% against dollar between Jan 1st and March 13th.
Buying US treasuries and Apple shares for dollar exposure is no longer a no-brainer. Do you need a bit of local currency? Some euros, sterling and gold?
Buckets and thimbles
It is interesting to look at how the US has come to dominate global markets in the past 15 years. Back then it represented 42% of the MSCI ACWI global index. Today it is 66%. The UK was 8% then; now 3%.
The US equity market is worth $62.2trillion today – ten times the size of the pan-European Euronext exchange. The UK LSE-listed equity market is worth $3.2m.
It is like comparing a bucket with thimbles. That means it would not take a big change in fund flows from the US to Europe to make a significant impact on European share prices. And especially so with small- and mid-caps.
We are not there yet. The headlines suggest the US has gone from a strong economy to one heading into recession and Europe from a no-growth warzone to EU-topia. The reality is more nuanced, and Europe has a tendency to disappoint.
Meanwhile, those campaigners who would like to see the US driven into recession by Trump should be careful what they wish for. If the US sneezes we will all catch the sniffles.
But those caveats aside, it is possible to see a situation where European shares flourish in the year ahead. And where those with a large exposure to the US – especially passive global investors – begin to question the wisdom of owning an index so heavily weighted to Trump’s kingdom.
Running an income mandate, I have long had to find alternatives to the Magnificent Seven and other US giants. In recent months that has been hugely rewarding. Now other investors may find themselves facing the same challenge.
Written by Jacob de Tusch-Lec, Manager of the Artemis Global Income Fund
