1 00:00:02,360 --> 00:00:09,560 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I'm Stephen Carroll and 2 00:00:09,600 --> 00:00:11,960 Speaker 1: this is Here's Why, where we take one new story 3 00:00:12,000 --> 00:00:14,000 Speaker 1: and explain it in just a few minutes with our 4 00:00:14,040 --> 00:00:15,760 Speaker 1: experts here at Bloomberg. 5 00:00:20,120 --> 00:00:23,439 Speaker 2: You're about perform the US this year, and especially when 6 00:00:23,440 --> 00:00:25,480 Speaker 2: you look at the currency adjustment, and I think that's 7 00:00:25,520 --> 00:00:26,840 Speaker 2: gone very under the. 8 00:00:26,920 --> 00:00:29,800 Speaker 3: Radar despite the gains, the phenomenal gains if the idea 9 00:00:29,840 --> 00:00:32,040 Speaker 3: in the US, we've actually seen a lot about performance, 10 00:00:32,200 --> 00:00:34,960 Speaker 3: particularly in terms of em This year is a year 11 00:00:35,120 --> 00:00:37,120 Speaker 3: where diversification has really worked. 12 00:00:37,440 --> 00:00:41,159 Speaker 2: This US stop market is actually underperformed. Most are directly markets, 13 00:00:41,159 --> 00:00:41,960 Speaker 2: including the UK. 14 00:00:42,320 --> 00:00:46,120 Speaker 4: It's a function of rewarding how other countries are reacting 15 00:00:46,159 --> 00:00:49,159 Speaker 4: to the policy changes emanating from the United States, and 16 00:00:49,200 --> 00:00:52,199 Speaker 4: they're coming to fruition a lot of structural reforms that 17 00:00:52,200 --> 00:00:54,640 Speaker 4: have been happening in these countries over the last few years. 18 00:00:54,760 --> 00:00:57,600 Speaker 2: This year, I think the number we'll speak for itself. 19 00:00:57,760 --> 00:01:01,959 Speaker 2: If it's not just for pure performances, it's also for diversification, right, 20 00:01:02,000 --> 00:01:04,320 Speaker 2: you don't want to put all your X in one basket. 21 00:01:04,800 --> 00:01:08,280 Speaker 1: A year is a long time on markets. Strategists started 22 00:01:08,319 --> 00:01:11,920 Speaker 1: twenty twenty five predicting that European stocks would have another 23 00:01:12,040 --> 00:01:15,760 Speaker 1: year in Wall Street's shadow. But fast forward twelve months, 24 00:01:15,760 --> 00:01:17,560 Speaker 1: and even though we've seen the S and P five 25 00:01:17,640 --> 00:01:20,920 Speaker 1: hundred hitting repeated record highs, it's not even in the 26 00:01:20,959 --> 00:01:24,600 Speaker 1: top ten of the best performing global stock markets, and 27 00:01:24,640 --> 00:01:28,000 Speaker 1: the MSCI IndX, the track shares outside the US saw 28 00:01:28,120 --> 00:01:31,560 Speaker 1: much bigger growth than the Wall Street benchmark. So here's 29 00:01:31,600 --> 00:01:35,920 Speaker 1: why US stocks underperformed the world in twenty twenty five. 30 00:01:39,720 --> 00:01:41,880 Speaker 1: Our senior market stratust Michael Masaka, joins me. 31 00:01:41,959 --> 00:01:42,720 Speaker 2: Now for more. 32 00:01:43,200 --> 00:01:45,319 Speaker 1: Michael, First of all, can you put in context for 33 00:01:45,440 --> 00:01:49,200 Speaker 1: US what sort of year it's been globally for stock markets. 34 00:01:49,520 --> 00:01:53,080 Speaker 3: The year has been pretty good for stock markets globally, 35 00:01:53,280 --> 00:01:57,880 Speaker 3: but it's been an eventful year, and the US hasn't 36 00:01:57,920 --> 00:02:02,200 Speaker 3: performed the way people weigh expecting it to, but it 37 00:02:02,280 --> 00:02:04,840 Speaker 3: performed very well. Still, there's a lot of things that 38 00:02:04,880 --> 00:02:08,200 Speaker 3: happened this year. We had the deep Seek event in China, 39 00:02:08,680 --> 00:02:12,519 Speaker 3: which was like a big hit to the US tech stocks. 40 00:02:12,600 --> 00:02:15,720 Speaker 3: Then we had the tariff heels. So the reason why 41 00:02:15,800 --> 00:02:18,480 Speaker 3: a lot of strategists and a lot of investors came 42 00:02:18,520 --> 00:02:21,280 Speaker 3: into the year thinking this year wouldn't be like a 43 00:02:21,320 --> 00:02:25,640 Speaker 3: great for stocks with the tariffs, and we've seen that 44 00:02:25,639 --> 00:02:29,080 Speaker 3: the volatility that was induced by those tariff was quite high. 45 00:02:29,120 --> 00:02:31,480 Speaker 3: I mean, we had decent draw down in the first 46 00:02:31,480 --> 00:02:34,320 Speaker 3: half of the year because of those, but the recovery 47 00:02:34,440 --> 00:02:35,120 Speaker 3: was like even. 48 00:02:34,960 --> 00:02:37,000 Speaker 2: Sharper than the draw down itself. 49 00:02:37,560 --> 00:02:41,000 Speaker 3: So we can see how market and investors have adapted, 50 00:02:41,080 --> 00:02:44,800 Speaker 3: and also corporates have adapted to this environment. In the end, 51 00:02:44,880 --> 00:02:48,919 Speaker 3: the tariffs were not the dramatic event that a lot 52 00:02:48,919 --> 00:02:53,120 Speaker 3: of people were anticipating. We had trade deals and even 53 00:02:53,160 --> 00:02:57,680 Speaker 3: if tariffs are staying in place for certain industries, companies 54 00:02:57,720 --> 00:03:01,639 Speaker 3: have adapted. They have adapted with price high, with some 55 00:03:01,960 --> 00:03:06,040 Speaker 3: cost cutting, and so overall the corporate earnings held on 56 00:03:06,120 --> 00:03:07,320 Speaker 3: pretty well this year. 57 00:03:07,680 --> 00:03:10,320 Speaker 1: Actually, as you say, a very good year for stock markets. 58 00:03:10,320 --> 00:03:12,679 Speaker 1: But can you break down for us that the regional 59 00:03:12,720 --> 00:03:16,640 Speaker 1: disparities as it were, USTOCS did do very well, but 60 00:03:16,720 --> 00:03:18,280 Speaker 1: everyone else just did better. 61 00:03:18,960 --> 00:03:20,639 Speaker 2: So USTOCS did very well. 62 00:03:20,680 --> 00:03:25,080 Speaker 3: Indeed, the rest of the world did better for one 63 00:03:25,280 --> 00:03:29,680 Speaker 3: major reason. We started the year with the firm view 64 00:03:29,840 --> 00:03:34,880 Speaker 3: that the US was exceptional, So that concept of US 65 00:03:34,960 --> 00:03:38,920 Speaker 3: exceptionalism was very strong. At the end of last year, 66 00:03:39,360 --> 00:03:42,360 Speaker 3: everyone was pouring money into US stock, into US market 67 00:03:42,440 --> 00:03:47,440 Speaker 3: into US bonds, into the US dollar in general, So 68 00:03:47,960 --> 00:03:54,240 Speaker 3: the world was concentrating the assets into US assets, and 69 00:03:54,600 --> 00:03:59,400 Speaker 3: that US exceptionalism has been challenged, challenged by the administration, 70 00:04:00,200 --> 00:04:03,120 Speaker 3: is challenged because the rest of the world. 71 00:04:03,040 --> 00:04:03,960 Speaker 2: Also took action. 72 00:04:04,560 --> 00:04:07,880 Speaker 3: We had the European Central Brent cutting rates much faster 73 00:04:08,400 --> 00:04:14,000 Speaker 3: than the Federal Reserve. We had that spending commitment from 74 00:04:14,360 --> 00:04:17,920 Speaker 3: European countries, whether it's the European Union or from Germany. 75 00:04:18,360 --> 00:04:20,960 Speaker 3: And we had innovation in China, China moving up the 76 00:04:21,040 --> 00:04:25,240 Speaker 3: value chain, emerging markets raising out of the ashes this year, 77 00:04:25,640 --> 00:04:29,400 Speaker 3: and all this challenge to US exceptionalism hit the dollar. 78 00:04:29,480 --> 00:04:31,039 Speaker 3: And I think that's one of the key things that 79 00:04:31,120 --> 00:04:33,400 Speaker 3: happened this year is you have a dollar that lost 80 00:04:33,440 --> 00:04:35,800 Speaker 3: about thirteen percent during the first half of the year 81 00:04:36,200 --> 00:04:38,680 Speaker 3: and it hasn't recovered those losses. 82 00:04:39,120 --> 00:04:40,240 Speaker 2: And this is. 83 00:04:40,400 --> 00:04:43,560 Speaker 3: A key metric I think in the outperformance of the 84 00:04:43,600 --> 00:04:46,359 Speaker 3: rest of the world. It's like that dollar, which is 85 00:04:46,440 --> 00:04:51,120 Speaker 3: less strong, is also a proof of how investors are 86 00:04:51,160 --> 00:04:54,400 Speaker 3: moving their assets towards other regions. 87 00:04:54,880 --> 00:04:57,080 Speaker 1: Can you talk to usbout had the AI trade played 88 00:04:57,080 --> 00:04:59,120 Speaker 1: into all of this, because of course the big tech 89 00:04:59,160 --> 00:05:02,080 Speaker 1: firms are large the American but it wasn't to trade 90 00:05:02,080 --> 00:05:05,240 Speaker 1: that uniquely favored American companies, that's right. 91 00:05:05,760 --> 00:05:08,920 Speaker 3: So it played a big part for a few reasons. 92 00:05:09,040 --> 00:05:11,880 Speaker 3: A it carried the US market higher for a while, 93 00:05:12,360 --> 00:05:16,279 Speaker 3: but also it triggered volatility because every time that trade 94 00:05:16,320 --> 00:05:18,880 Speaker 3: is challenged, or every time you have fears of a 95 00:05:19,160 --> 00:05:22,760 Speaker 3: bubble or like valuation are too high, it takes a hit. 96 00:05:23,320 --> 00:05:24,960 Speaker 2: The weight of the tech sector in. 97 00:05:24,920 --> 00:05:27,520 Speaker 3: The S and P five hundred is the highest it's 98 00:05:27,560 --> 00:05:31,800 Speaker 3: ever been, higher than doing the dot com bubble. So 99 00:05:32,080 --> 00:05:34,640 Speaker 3: the sensitivity of the US market to the tech trade 100 00:05:34,880 --> 00:05:37,680 Speaker 3: is very, very high. And it's not just the weight 101 00:05:38,040 --> 00:05:42,159 Speaker 3: into the benchmark, it's also the weight in returns. You 102 00:05:42,240 --> 00:05:45,279 Speaker 3: take five stocks and you get half of the returns 103 00:05:45,320 --> 00:05:47,680 Speaker 3: of the S and P five hundred this year. This 104 00:05:47,839 --> 00:05:51,520 Speaker 3: is a level of concentration which is like unique, very 105 00:05:51,640 --> 00:05:55,280 Speaker 3: very very heavy, and that also tells the investors that 106 00:05:55,320 --> 00:05:58,040 Speaker 3: they need to be more diversified. And the only way 107 00:05:58,080 --> 00:06:00,840 Speaker 3: to be more diversified is to other regions, because when 108 00:06:00,839 --> 00:06:03,400 Speaker 3: you compare yourself to a benchmark which is so skewed 109 00:06:03,560 --> 00:06:06,080 Speaker 3: to one sector or to one set of stocks, you 110 00:06:06,160 --> 00:06:07,120 Speaker 3: need to look elsewhere. 111 00:06:07,520 --> 00:06:08,440 Speaker 2: And so the. 112 00:06:08,320 --> 00:06:12,360 Speaker 3: Opportunities, especially in the AI trades were also found in 113 00:06:12,560 --> 00:06:17,800 Speaker 3: countries like Korea, which had like phenomenal returns this year. China, China, 114 00:06:17,880 --> 00:06:21,159 Speaker 3: which was like an investable market just a few years 115 00:06:21,160 --> 00:06:23,720 Speaker 3: ago and has become like the market everyone wants to 116 00:06:23,760 --> 00:06:27,599 Speaker 3: have exposure to. So we see a big switch in 117 00:06:27,680 --> 00:06:31,520 Speaker 3: terms of how investors are looking at their investments and assets. 118 00:06:31,880 --> 00:06:35,240 Speaker 1: How does the picture look then for twenty twenty six. 119 00:06:35,400 --> 00:06:38,159 Speaker 1: You say that US exceptionalism has been challenged this year? 120 00:06:38,200 --> 00:06:40,400 Speaker 1: Does that challenge continue into next year? 121 00:06:40,960 --> 00:06:43,960 Speaker 3: If you look at the forecast, what we are going 122 00:06:44,000 --> 00:06:46,839 Speaker 3: to see next year is a convergence in terms of 123 00:06:46,880 --> 00:06:50,880 Speaker 3: earnings growth. Europe has been a region with very sluggish 124 00:06:50,920 --> 00:06:54,440 Speaker 3: earnings growth for years. Next year it's supposed to be 125 00:06:54,520 --> 00:06:56,920 Speaker 3: almost as high as the one in the US. What's 126 00:06:57,000 --> 00:07:00,800 Speaker 3: going to drive this fiscal spending from Germany and from 127 00:07:00,839 --> 00:07:04,719 Speaker 3: the European Union, but also low interest rates capex from 128 00:07:04,760 --> 00:07:07,839 Speaker 3: companies You were mentioning the AI trades in Europe. We 129 00:07:07,880 --> 00:07:10,880 Speaker 3: don't have a lot of tech companies, very few of them. 130 00:07:10,960 --> 00:07:15,600 Speaker 3: But there's other ways to play AI and the emergence 131 00:07:15,640 --> 00:07:19,360 Speaker 3: of data centers through other things like energy. For example, 132 00:07:19,400 --> 00:07:21,880 Speaker 3: you take a stock like Cemen's Energy it's been the 133 00:07:21,880 --> 00:07:24,640 Speaker 3: post child of the AI trade in Europe because they 134 00:07:24,680 --> 00:07:28,200 Speaker 3: are providing power to the data centers. So all this 135 00:07:28,400 --> 00:07:30,880 Speaker 3: to say, there's a lot of investors, a lot of 136 00:07:30,920 --> 00:07:34,560 Speaker 3: strategies that actually see that the past decade that we 137 00:07:34,640 --> 00:07:39,920 Speaker 3: have of exceptional returns for the US markets over and 138 00:07:39,960 --> 00:07:43,160 Speaker 3: that the next decades won't be the decade. 139 00:07:42,800 --> 00:07:46,120 Speaker 2: Of US stocks. US stocks will perform, don't get me wrong. 140 00:07:46,200 --> 00:07:49,600 Speaker 3: I mean the innovation that we have, the invasion capacity 141 00:07:49,640 --> 00:07:52,120 Speaker 3: that we have in the US is very strong. All 142 00:07:52,160 --> 00:07:55,680 Speaker 3: the biggest tech companies over there. So the market will perform. 143 00:07:56,120 --> 00:07:59,920 Speaker 3: But the opportunities are going to be found in other regions. 144 00:08:00,400 --> 00:08:03,960 Speaker 3: And that's why another forecast are bidding that emerging markets 145 00:08:03,960 --> 00:08:07,640 Speaker 3: will lead returns for the next decade and that Europe 146 00:08:07,680 --> 00:08:08,960 Speaker 3: won't be too far behind. 147 00:08:09,400 --> 00:08:11,880 Speaker 1: That'll keep us all interested. Our senior market stratch just 148 00:08:11,960 --> 00:08:15,200 Speaker 1: Michael Maseka. Thank you very much. For more explanations like 149 00:08:15,240 --> 00:08:17,960 Speaker 1: this from our team of three thousands journalists and analysts 150 00:08:18,000 --> 00:08:22,200 Speaker 1: around the world, go to Bloomberg dot com slash explainers. 151 00:08:22,640 --> 00:08:25,240 Speaker 1: I'm Stephen Carol. This is here's why I'll be back 152 00:08:25,280 --> 00:08:27,160 Speaker 1: next week with more. Thanks for listening.