00:00Things actually happened much better than when people got very nervous around April and we had a bout of volatility.
00:07But the reality is that the global economy and U.S. economy had held up much better than expected.
00:13But what I want to point out is about just the headline numbers are pretty, you know, consistent growing.
00:20But below that there are massive changes, which is leading to dispersion and rotation in leadership.
00:27And headline numbers, you know, global growth for 2026 is expected to slow down by just about 10 or 20 basis points.
00:34But if you see where that growth is coming in, you are having so much growth in the emerging markets in developed U.S.
00:41And that's showing up in how those equity markets have been doing so far.
00:46So this dispersion and the rotation in leadership are key themes coming out from where we are in the macroeconomy.
00:54Well, we'll talk a little bit about that because it's kind of surprising.
00:57I mean, if you were just focused on the U.S. market and these are phenomenal gains, 15 percent on the S&P, almost 20 percent on the NASDAQ.
01:03But then, of course, you look at just broad EM indexes far outperforming all of the major U.S. indices.
01:09And then even on an individual basis, whether you're looking at China and Hong Kong, some of the emerging markets in Latin America also outperforming.
01:18Is that a function of what's been happening here in the U.S. or a function of maybe something good happening in those countries?
01:24It's a function of rewiring how other countries are reacting to the policy changes emanating from the United States
01:31and the coming to fruition of a lot of structural reforms that have been happening in these countries over the last few years.
01:37So we started with the broadening of the rally outside the United States, both into other countries and other sectors because of the other pillars of growth that we are seeing in the global economy.
01:47Let's look at it this way.
01:48The AI China is obviously doing a lot on the AI green transition, all the latest technology.
01:54Benefiting from that are the ASEAN countries, the EM in Asia.
01:59A lot of these new technology depend on commodities, and Latin America is really benefiting from that.
02:06That's why you see so much strength in Brazil and Mexico.
02:09Gold has become a major asset class simply because of the environment of uncertainty.
02:15So the gold mining stocks, South Africa, is benefiting.
02:18And emerging markets in general have gone through so much fiscal consolidation, getting their balance sheets in order.
02:24Those strengths, which showed first in their fixed income market, has now gone on to the upside, meaning the risk asset equities.
02:33And that's why this year, year-to-date, November 30th, emerging market equities have been ahead of developed markets by about 3 percentage points.
02:42That's fairly significant.
02:43Sorry, go ahead.
02:44Well, I see the returns.
02:46Is the money actually following it?
02:47And by that, I mean we talked earlier this year about how there was this rotation to a certain extent out of U.S. assets into non-U.S. assets.
02:53Depending on what data point you look at, that's either true or not true.
02:56But overall, is there more actual investor activity in those nations?
03:01I would say yes.
03:02And one simple point that I would say is, you know, for years we have heard that developed or ex-U.S. markets have lower valuation and lower valuations can continue for a very long time.
03:14What has shifted in 2025, if you see the valuation re-rating, the extent to which valuations have gone up, they have gone up in the U.S. also.
03:23But the extent of going up is much higher in China, in developed Europe, in Japan.
03:29So when valuation re-rating happens, that's because there are capital flows at play and people are put, sentiments have shifted and capital flows are at work because of which the valuation re-rating has gone up.
03:41So, you know, valuations remaining lower always has been.
03:45But the re-rating has been more in these other countries.
03:48And today they have, their earnings growth is expected to be higher than the U.S. by anywhere between one and a half to three percentage points.
03:56Earnings revisions in many of the countries like Japan, massive increase in earnings revision and probably more to follow with all the reforms and the new prime minister and the policies to play.
04:07And don't forget, we need to look at equity risk premium.
04:10Are people getting paid?
04:11And the equity risk premium is certainly higher in developed Europe and Japan.
04:16So look at earnings growth, look at earnings revision, look at valuation re-ratings.
04:21Those are the fundamental data points that really point to the fact that something has shifted and we need to be more diversified to pick up that.
04:29I do have to ask you about China and investing in China.
04:31There's a great story in the Bloomberg Terminal today about how China went from basically being, quote, unquote, uninvestable because of the political issues to indispensable, their words, not mine.
04:40And it gets to this idea as to whether investors really ever left China, foreign investors, that is.
04:45See, the global economy is becoming, I won't say fragmented, but certainly, you know, it's standing on more pillars and more countries.
04:54And China is certainly one of them.
04:56I mean, it's the second largest economy.
04:58There is a lot of innovation happening, albeit a different kind of innovation from the United States.
05:03And it's getting their exports.
05:06Look at it.
05:06I mean, we had all these tariff tensions, but China's exports to the rest of the world have actually increased.
05:13The destinations have changed, right?
05:15So this re-wiring, they have been pretty successful, I would say.
05:19And global investors follow where, you know, where the expected returns are.
05:23And they also want to keep their risk diversified, not have very concentrated portfolios or concentrated sources, drivers, so to say.
05:33So to that extent, yes, people have stayed there.
05:36So to that extent, yes, people have stayed there.
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