27 Jun 2025

Investment: Can you predict where in the world your money will be best invested?

There has been significant market turmoil over the past few months – much of it triggered by the American President’s exploration of punitive trade tariffs, as well as the political push for Europe to support itself militarily, which have both had powerful impacts on various stock markets. In this context, investors may start to think that they should be ‘strategic’ about where in the world they invest in equities.

This is a natural impulse in the face of shifting geopolitical sands. But the investment philosophy of Hoe Bridge Wealth is to trust the markets, and to align with the overall market cap weightings of the different regions of the world. Not to follow the weightings within each market blindly as passive funds do; instead, based on decades of academic evidence into long-term performance:

• to tilt within each geography away from larger companies towards smaller ones,
• to tilt away from overvalued ‘growth’ stocks towards less fashionable ‘value’ stocks, and
• to tilt toward profitable over unprofitable companies.

Over time the regional allocations in our portfolios are gradually adjusted, keeping with trends in the weightings of different regions out of total global market capital values, but trusting overall the capital allocation decisions made by the millions of market participants every day.

So why do we do this? Let’s examine the current geopolitical picture. America’s global power may well be in retreat. China has been strategically de-coupling itself from reliance on trade with America since 2016. Demographic and middle class growth for the next few decades appear to be very firmly in Asia – and perhaps some parts of Africa. Currently, America’s stock markets are worth about 63 to 65 percent of total global stock exchange value. Some believe this is excessive and can only face decline.

First, is America no longer what it was? Can a single presidency completely undermine the economic strength, complexity, and competitiveness of the largest trading power on earth? America’s current stock market dominance is a confluence of many things:

• a virtuous circle of favourable conditions for listing a public company in an environment with vast investor funds and where business owners and leaders can be richly rewarded – so that many businesses with innovative ideas that may have been founded in India or China or Europe, end up choosing to list on an American stock market
• A breadth and depth of businesses unmatched elsewhere – America’s listing of its largest public behemoths is now famously made up of 500 companies, but there are a great many more businesses that don’t make this S&P 500 that are still larger, and better known than many other country-leading businesses around the world
• America’s larger businesses, like many others, are global, trading around the world and often deriving much of their revenues from other geographies with different demographic, political and social trends

On the other hand:

• Many feel that America’s stock markets are an overvalued investment bubble. The US represented more than 70% of the global investable market in the late 1960s – but then took 20 years to recover this position after the oil shocks of the early 1970s. Are we there again: with companies trading at high multiples of current revenues, and America’s stock market dominance appearing heavily driven by the technology sector and silicon valley?
• Some investors make the mistake of only investing in America – this has significant potential downsides, as we’ve covered before looking at the lost decade of the early 2000’s after the “dot.com” investment bubble burst. Historically, a less volatile investor journey has been delivered by more diversified investments.

Now comes the hard part. How does one decide, if the American market is not what it once was, where instead to allocate investments in equities? Does one opt for the UK, where Brexit continues to hang a long cloud over both the economy and the currency? Europe, where demographic trends combined with increasing political resistance to migration, do not bode well for future acceleration – indeed Europe seems proud of its status as the most regulated and rulebound trade area? What about China? A powerful economy no doubt, but we’ve already seen the government’s willingness to crush an entire sector’s stock market valuations if there appears to be any threat to the hegemony of the government (e.g. in private education and technology) – which poses significant risks to would-be investors. What about emerging Asia: Vietnam, Indonesia, etc. Small countries with substantial growth prospects, but also plenty of volatility and economic and political unpredictability in their futures.

Stock market valuations as a proportion of the global total will change over time. Japan’s stock market was roughly equal to that of America in September 1987, with the USA accounting for 37% and Japan for 35% of the total. Today, Japan accounts for less than 8%. But can we accurately predict where and how change will occur? Above, I have borrowed a graphic from Dimensional Fund Advisers – illustrating how different developed markets performed over the years between 2005 to 2024, which neatly shows the pitfalls of predicting what part of the world will perform best each year. The academic phrase is that markets are a ‘random walk’ – which to us translates that it is a guessing game, nothing more scientific.

What is your investment philosophy and how are you monitoring it?

If you want to discuss your investments or wider financial planning – book a free initial chat with me
https://calendly.com/duncan-bw-hoebridgewealth/30min

NOTE: The value of your investment can go down as well as up. None of the above is financial or investment advice and you should speak to me or someone else professionally qualified to give you advice specifically tailored to your circumstances.