Notably, this current US equities recovery is being driven primarily by domestic retail investors while gains in global stocks are due in large part to institutional investors diversifying their portfolios and risks from very overweight US positions. This divergence is not surprising. Most retail investors tend to prioritise rewards over risks and investing in US equities, “buy the dip”, has been a hugely rewarding trade for years. Large funds, on the other hand, typically take a more balanced view, taking into consideration valuations, micro-macroeconomics and geopolitics in their investing decisions.
Global equity markets have recovered smartly from the lows in April 2025 that were triggered by US President Donald Trump’s shock and awe tariffs and trade policies. Investor sentiment improved quickly after he paused reciprocal tariffs for 90 days — which would expire on July 8 for all countries except China, unless a deal is made by then — and further assuaged following the resumption of trade talks with China. Indeed, markets stayed comparatively calm during the latest flare-up in conflict between Israel and Iran, and the US’ subsequent involvement. The Standard & Poor’s 500 index just hit a fresh all-time high record last week. Remarkably, stocks outside of the US have performed even better, with both the MSCI World Index (tracking developed markets) and MSCI Emerging Market Index leading gains compared to major US benchmark indices for the year-to-date (see Chart 1). European and Hong Kong-listed stocks, for instance, have outperformed this year — both had lagged badly behind the performance of US equities in the past decade, and more.
