So far this year, portfolio managers worldwide have faced a mini revolution, navigating a marked rotation between winners and losers in equity markets. The winners from the 2021-2024 period were clearly identified. In developed markets, US technology had dominated unchallenged, while India shone in the emerging universe. A portfolio concentrated in these segments would have performed wonderfully during this period. However, the winds have shifted since the start of this year. Initially, a rotation saw Europe take the lead and China emerge strongly from the Deepseek2 episode. White House measures subsequently played a catalytic role in the reorientation.
This week, Simply put provides a mid-year assessment of Trump's impact on equity market leaders. We find that effects on the risk-return profile of markets (i.e. the higher the risk, the higher the reward, and vice versa) may have been profound but are also more subtle than they initially appear.
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Former champions dethroned
A simple way to understand the profound changes affecting equity markets is to study the ranking of regional equity indices across different periods. These indices can be ranked by performance and also by risk. Figure 1 compares the ranking of 15 regional MSCI indices over two periods: the post-COVID period (2021-2024) and 2025, in order to identify what has changed in the market. Has the White House affected returns, risk or the entire risk-return relationship?
Our observations are striking:
- We note a decreasing relationship between these sets of rankings. The return champions of 2021-2024 have become the laggards of 2025: US equities, India and Japan. Conversely, China, Mexico, Brazil and Germany are the winners this year (in local currency terms), having been underdogs during the previous period
- However, the risk relationship has increased: the most volatile markets in 2025 are also those that were volatile during the previous period.
2025’s rotation has, therefore, mainly affected returns, rather than the relative risk between indices. The market is clearly still trying to reassess the performance prospects of different regions.
FIG 1. Comparative ranking of performance and risk of regional MSCI indices over two periods3
Return to a healthier risk appetite structure
By studying ranking changes, another dimension emerges: the relationship between return and risk over both periods (which is often easier to represent in the form of an efficient frontier graph). Figure 2 presents the relationship between return and risk: risk on the x-axis and return on the y-axis. An ascending slope is expected, signalling that more diversified risk should mean more return.
The chart highlights the evolution of the efficient frontier formed by these 15 indices over both periods, highlighting the effect that the White House has had on the global investment opportunity set. And here's the surprise: in 2021-2024, the least risky indices were paradoxically those that performed best, while the riskiest generated the lowest returns (an inverted risk-return relationship, that is more typical of recessionary periods).
In 2025, this relationship has normalised: the most volatile indices are now the ones generating superior returns. This is a sign of a return to a more robust and balanced risk appetite, and one that our signals will continue to closely monitor. Some of our risk appetite signals specifically use the relationship between index rotation and market psychology as a risk appetite signal: this is therefore a message to which we are attentive.
FIG 2. Risk/return comparison across regional MSCI equity indices4
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The investment implications for multi-asset investors
The message for our All Roads strategy is simple and clear: stick to our process and diversify. While some multi-year periods may punish diversification – diversified equity exposures or a structural exposure to commodities may sometimes be temporarily unrewarded in terms of performance – long-term data shows that diversification leads to robustness over the long run, as shown by the past 14 years of performance across our solutions. We are currently positioned close to neutral between growth and protection assets, while total market exposure is slightly below our historical averages.
Simply put, the events of 2025 so far may have disrupted earnings prospects, but they have restored a semblance of order in the relationship between return and risk in equity markets.
Macro/nowcasting corner
The most recent evolution of our proprietary nowcasting indicators for global growth, global inflation surprises, and global monetary policy surprises is designed to track the recent progression of macroeconomic factors driving the markets.
Our nowcasting indicators currently show:
- Our growth nowcaster decreased during the week, particularly in the US, and currently remains in a low but rising zone
- Our inflation nowcaster also decreased globally this week, though it remains well above 50% in both the US and the eurozone
- Our monetary policy indicator was flat in the eurozone, while it declined slightly in the US and China and is situated below the 50% threshold.
World growth nowcaster: long-term (left) and recent evolution (right)
World inflation nowcaster: long-term (left) and recent evolution (right)
World monetary policy nowcaster: long-term (left) and recent evolution (right)
Reading note: LOIM’s nowcasting indicators gather economic indicators in a point-in-time manner in order to measure the likelihood of a given macro risk – growth, inflation surprises and monetary policy surprises. The nowcaster varies between 0% (low growth, low inflation surprises and dovish monetary policy) and 100% (the high growth, high inflation surprises and hawkish monetary policy).