Navigating the New Multipolar Investment Landscape

J O Hambro Capital Management Ltd | Nudgem Richyal, Christopher Lees | 22 Apr, 2025 | 6 Views

Multipolar Investment

The global investment environment is undergoing a profound transformation, marked by a shift from a concentrated, unipolar market dominated by American mega-cap stocks to a more diversified and multipolar framework. This change, catalyzed by macroeconomic uncertainties and technological disruptions, demands a re-evaluation of portfolio strategies to mitigate risks and seize emerging opportunities.

The Transition to Multipolar Markets

President Donald Trump’s tariff announcements may have sparked recent market volatility, but the underlying structural changes were already underway. The shift became evident on ‘DeepSeek Day,’ when the market’s fixation on AI-related capital expenditure began to show vulnerabilities. The new regime divides global opportunities into three geographic buckets: the Americas, Europe, and Asia. It also signals a move away from the dominance of big tech and AI toward broader sectoral diversification.

Stable sectors such as consumer staples, telecoms, and utilities are poised to outperform amid ongoing macro uncertainty in the short term. This environment favours active equity investment, where success hinges on weighing competing opportunities rather than relying on a single trend. Volatility presents opportunities to buy favoured assets during dips and to sell underperformers during spikes. This volatility also benefits our investments in financial exchanges that profit from increased transaction volumes and derivatives activity.

Regional Opportunities: Asia and Europe

Japan’s inflationary environment and rising interest rates mark a historic shift, benefiting Japanese banks through improved margins. Morgan Stanley research suggests that for every 25 basis point increase in central bank rates, commercial banks’ net profits could rise between 5–25%, with top-performing banks seeing even greater^gains1.

Europe offers distinct but equally compelling prospects. The breaking of Germany’s fiscal lock opens the door for stimulus measures in infrastructure sectors like transport and energy—areas with minimal cross-border exposure. Defense-related industries have already revalued, signaling potential growth in domestic-focused sectors as European states leverage their fiscal flexibility.

Addressing Concentration Risks Post-DeepSeek

The release of DeepSeek’s advanced AI models highlighted concentration risks in portfolios due to heightened pairwise correlations among AI-centric investments like technology, semiconductors, and fintech themes. This overexposure amplified volatility during market stress periods, underscoring the need for diversification.

In response, we have made some strategic shifts in our allocation:

1. Dynamic Rebalancing: Narrower rebalancing bands were adopted to counter equity market swings.

2. Sectoral Diversification: Exposure to defensive sectors such as utilities and telecoms was increased while reducing reliance on growth-sensitive areas like technology.

3. Geographic Diversification: Recognizing regional disparities in economic cycles and geopolitical risks, allocations were broadened across regions.

Looking Ahead: Adaptability Through Diversification

The rise in portfolio correlations post-DeepSeek serves as a reminder that even promising themes can create vulnerabilities if left unchecked. Diversification across asset classes, sectors, and geographies is not merely defensive—it is essential for capturing opportunities in an increasingly complex investment landscape.

As markets evolve under the influence of political noise and transformative technologies like AI, adaptability will be crucial. By embracing diversification and maintaining balanced growth potential, investors can navigate uncertainties while aligning portfolios with strong and positive growth themes in this new multipolar world.

¹Launching a Holistic Investment Framework for Japan Financials, Morgan Stanley MUFG, March 19 2025

RISK CONSIDERATIONS: The strategy invests in international and emerging markets. International investments involve special risks, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Such risks include new and rapidly changing political and economic structures, which may cause instability; underdeveloped securities markets; and higher likelihood of high levels of inflation, deflation or currency devaluations .

The views expressed are those of the portfolio manager as the date of posting, are subject to change, and may differ from the views of other portfolio managers or the firm as a whole. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice.

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