Rudi's View | Nov 12 2025
This story features MEGAPORT LIMITED, and other companies.
For more info SHARE ANALYSIS: MP1
The company is included in ASX200, ASX300, ALL-ORDS and ALL-TECH
In this week's Weekly Insights:
- New Trends & Recurring Anxieties
- FNArena Talks
By Rudi Filapek-Vandyck, Editor
It seems almost like a preposterous idea, especially after such a long stretch of US outperformance, but what if 2025 is marking the end of the trend that has seen US markets dominate global investment flows and returns post GFC?
On some rough calculations (not corrected for FX, tax, costs, etc) US equities have outperformed the rest of the world by more than 6% per annum when measured from the March 2009 low during that crisis, which by anyone’s standards is phenomenal.
The explanation is three-fold; we are living through another technology-driven era and the US sits at the centre of it, US companies have become more resilient and more profitable than they’ve ever been (better than their offshore peers), plus US equities are also much higher valued than their offshore comparisons as more and more investment flows were welcomed from overseas markets.
That latter part is equally important: by the end of 2024 it is estimated non-US investors held assets worth US$62trn, or more than twice the size of the US economy.
During times of persistent US outperformance, it had become pretty much a no-brainer for investors outside the country to allocate ever larger parts of their portfolio to US markets, a trend that has equally become popular among investors in Australia.
Things have changed a little bit throughout 2025, but not dramatically so. US equities make up 64.7% of the MSCI ACWI, a leading index for global equities from 23 developed and 24 emerging markets, down from a peak of 65% in late 2024, but that percentage is arguably still enormous.
Consider the long-term average sits a smidgen above 50% and back in 2008, during the GFC, it had dropped as low as 41%.
Today’s outsized market weight for US equities is equally the result of the virtuous cycle that developed since subprime loans pulled the US economy in a deep crisis, with a strong US dollar, above-average bond yields and better equity performance continuing to attract an ever larger size of global investment funds.
2025 is different
It’s easy to assume this trend is now firmly set in stone and destined to continue for much longer into the future. Certainly, my impression from views and projections as expressed by traders and investors locally suggests the idea of US dominance and eternal outperformance has now become universal truth for many.
But as calendar year 2025 is approaching its natural terminus, US markets already are no longer leading this year’s performance tables.
Certainly, a near 20% surge for the Nasdaq and 14%-plus gain for the S&P500 are nothing to be sniffed at (and well above long term averages) but that doesn’t even make it into this year’s global Top Ten where returns between 59% and 29% (in local currencies) have been achieved by markets in South Korea, Poland, Greece, Spain, Mexico, Brazil and Vietnam.
It’s just as easy to dismiss this year’s reversal in global performance rankings as a one-off aberration, especially from an Australian perspective where indices –even with outsized dividend payments– are yet again lagging the Mighty USA, but there’s a growing view among investors globally that what we are witnessing this year might well be a reversal of the trend that has dominated the global landscape up until last year.
The easiest motivation for such fundamental trend change starts with the current peak representation of corporate America; even if nothing changes in the dominance of US megacap companies, is it feasible to see their relative representation in global equities and investment fund flows increase even further?
Towards a global rebalancing?
To truly see this trend change, we need more than a stretched global (over)weight, of course. Analysts at UK headquartered asset manager Ninety One recently identified a number of fundamental forces that –combined– have the ability to rebalance global fund flows and relative asset valuations.
Such trend reversal will eventually make global finance less US-centric and non-US assets more attractive in the here and now.
It all starts with the underlying trend for the US dollar, Ninety One argues.
During the good times, strong equity returns, solid Treasury yields and a strong dollar make for an almost irresistable proposition for investors outside the country. But a prolonged weakening of the global reserve currency can fundamentally change that and start a trend reversal.
The US dollar has already weakened noticeably this year, but it is still believed to be relatively overvalued –potentially in double digit percentage– and many a forecaster is projecting more weakness ahead. This makes owning US assets less of a no-brainer for foreign investors.
But wait, there’s a lot more to consider.
Global discomfort around the central role of the US and the US dollar has not been this high for a very long time. Whether you support Donald J Trump’s unconventional presidency or otherwise, fact is his policies are motivating many governments and businesses around the globe to look for less US-centric strategies.
Equally, measures undertaken by the previous Biden administration to punish Putin’s Russia have made leaders in countries such as China, Saudi-Arabia, Brazil, and South-Africa re-think their dependency on the US dollar and the global banking system.
The latest survey among global central banks revealed no less than 28% is of the intent to significantly lower exposure to the US dollar over the coming five years. Last year, in 2024, that percentage was 13%. A year earlier, in 2023, it stood at 5% only.
A second, potentially even more influential factor is that the relative gap in fiscal policies and economic growth between the US and the rest of the world has become less extreme and that, if anything, is what has caused this year’s turnaround in relative equity market performances.
Europe is no longer held back by austerity and instead is investing in defence and energy security while many an emerging economy has managed to upgrade itself. As also highlighted by Ninety One, on average emerging market governments are much less indebted than their developed peers.
Large Asian economies of India, Korea and Taiwan nowadays stand out for solid public finances in combination with success in fostering private sector innovation.
Equally, China is creating new avenues for growth post its transformation from infrastructure to advanced manufacturing. Chinese consumer demand has already become the leading driver for luxury goods, consumer electronics, and ecommerce.
It is well possible today’s outsized valuations for US megacap companies turn into tomorrow’s headwind, in particular if earnings growth elsewhere starts to catch up.
On Ninety One’s calculation, today’s market size of the median US company only represents 2% of the average market capitalisation of the largest 10% of US-listed companies.
As anyone would’ve guessed, such a large gap has seldom occurred throughout history. It’s virtually impossible to see this ratio decline even further.
It’s about AI too
There’s potentially an important role for AI in this process as well. Up until now the majority of attention has gone out to initial AI adaptation and significant investments into supporting infrastructure. This further cemented the US’ leading role in the early phase of the emerging AI era.
But that technology is developing and will increasingly transform industries and companies outside the Mag7 and even the broader technology sector.
This might well prove the final factor to push the global momentum pendulum further away from the US as companies in Europe, Asia and elsewhere achieve higher margins and greater profits (in cases of successful AI integration).
Such prospect was also (indirectly) reflected in a research report released by Morgan Stanley on Friday, stating
“Our proprietary analysis shows a steady increase in the share of companies seeing quantifiable benefits from AI adoption. This supports our market call for a broadening in earnings into 2026.
“We think this helps keep index valuation elevated and see some key differences vs. 1999-2000 in this regard.”
On the broker’s deeper analysis, some 24% of companies that have adopted AI are now mentioning quantitative impact on their operations during the Q3 reporting season in the US. This is up from 21% and 15% respectively in Q2 and Q1 earlier in 2025.
In first instance, this should broaden the leadership in US markets and deliver positive operating leverage that is not yet accounted for in today’s valuations.
Further out, of course, a broadening of this trend will ultimately start including comparable success stories outside of the US.
Meanwhile in Australia
Goes without saying, the development and integration of AI-driven business improvements will equally start showing up on the ASX.
Thus far, this has predominantly remained the narrative surrounding companies like Megaport ((MP1)), NextDC ((NXT)), Goodman Group ((GMG)), and TechnologyOne ((TNE)).
I suspect it won’t be long before we hear more about AI from the likes of CommBank ((CBA)), Data#3 ((DTL)), JB Hi-Fi ((JBH)), Insurance Australia Group ((IAG)), Sonic Healthcare ((SHL)), Telstra ((TLS)), Webjet ((WEB)), and others — all in different format and context.
But it’s early days still. Both in terms of a potential trend reversal between US assets and the rest of the world as well as in broader development and application of AI.
In the short-term, investors need to get comfortable yet again with US indices and megacap valuations and this is likely to keep markets on edge and volatile.
Add portfolio rotation into resources stocks (mining, energy and related cyclicals) and into smaller caps (the new trend) and there hasn’t been much love left for larger cap AI beneficiaries and technology stocks on the ASX.
Shares in companies such as Xero ((XRO)) are now trading near their April low, down year-to-date and unchanged from twelve months ago.
This seems like excessive de-rating by local investors afraid for a repeat of the 2000-2001 Nasdaq meltdown which, as I keep repeating, is not how I see the world today.
As I posted on social media (X) this morning:
For more than ten years I have been an investor in Quality and Quality Growth, but current undercurrents in equities are turning me into a ‘value’ (undervalued) investor.
Go figure 😉
That is not a reference to me now considering buying shares in smaller cap miners and developers, but to the conviction that many of the stocks held inside the All-Weather Model Portfolio, and included in my curated lists on the dedicated section of the website, are now fundamentally undervalued.
Paying subscribers have 24/7 access to those lists: https://fnarena.com/index.php/analysis-data/all-weather-stocks
FNArena Talks
Our latest video is simply a brief collection of highlights from last week’s changes in stockbroker ratings:
https://fnarena.com/index.php/fnarena-talks/2025/11/07/broker-moves-adairs-lovisa-sovereign-metals/
Review All-Weather Model Portfolio
The financial year ending on June 30th 2025 featured the return of Donald Trump in the White House and of extreme market volatility.
The second half of the year also saw doubt creeping into general sentiment towards AI and demand for data centres.
All in all, a gain of 13.85% (pre-fees) for the twelve months is not something to be unhappy about, right?
FY25 review of the All-Weather Model Portfolio: https://www.fnarena.com/index.php/download-article/?n=4B38C0EF-A173-8CE6-736A7AFC7B19FC49
Model Portfolios, Best Buys & Conviction Calls
This section appears from now on every Thursday morning in a separate update on the website. See Rudi’s Views for the archive going back to 2006 (not a typo).
FNArena Subscription
A subscription to FNArena (6 or 12 months) comes with an archive of Special Reports (21 since 2006); examples below.
