A shift in market leadership: Is the US losing its crown?

For those of us from the North-East of England, we know only too well that success can be a long-time coming – only for everything to change in an instant. Just look at Newcastle United’s recent triumph, toppling the Premier League leaders and bringing silverware home for the first time in seventy years.

Could this also be the year when the long-reigning champion of the stock market faces its own shake-up? The US, dominant for decades, may now be at risk of losing its mantle to long-overlooked contenders. Certainly, President Trump and his disrupter-in-chief have investors questioning whether the US is resilient enough to withstand the layoffs and cost savings that the DOGE seems intent on implementing.

European markets: A new era of opportunity?

Despite the macro and geopolitical headwinds Europe faces, we believe its markets offer compelling opportunities on valuation alone. Many world class European companies are trading on discounts to their US peers that have rarely, if ever, been this attractive. Despite the outperformance seen by most European markets this year, we maintain that this outperformance can continue. Moves like the German Bundestag’s decision to implement a €500 billion infrastructure package – temporarily putting aside fiscal restraint - will help to add fuel to the embers that seem to still be simmering.

The question of China remains one of much debate. The US has done their utmost to stop it becoming a technological superpower. While it has flipped flopped on tariffs on most nations so far this year, the administration has only decided to add yet more restrictions and charges on China, the World’s second-largest economy. In a show of defiance, the Chinese government has been throwing caution to the wind in attempts to kick start its economy despite the tariffs and the ongoing property crisis. The plan to increase consumption by measures like offering 500 RMB subsidies for buying smartphones under 6,000 RMB and initiatives to protect non-state-owned enterprises, appears to be gaining traction.

Additionally, while the US has sought to block China from accessing cutting edge AI infrastructure, this has only led Chinese firms to double down on home grown talent. This may well back fire on the US, as China become less dependent on US supplies. Certainly, the companies like Tencent, Alibaba and DeepSeek are making strides, while the recall of Jack Ma from the sidelines signals renewed ambitions.

The latest data from the National Bureau of Statistics reflects this shift. Industrial production grew by 5.9% compared to last year, driven by a 9.1% increase in the value of high-tech manufacturing. With the Chinese government’s backing, consumption looks likely to be the key policy in reviving economic growth. However, for it to be maintained consumer confidence needs to be restored, which is currently steadfastly stuck at historically low levels. Markets, however, are forward looking instruments, and after years of negative headlines, even a glimmer of positivity may lead to markets moving ahead of any confirmatory economic data being released.

A turning point for global investors?

The recent decline in US stock markets may provide an opportunity, but Washington’s apparent lack of concern over market corrections raises doubts. After years of outperformance, investors may decide that the best gains are to be made elsewhere. We believe that the malaise may continue for a few months yet, as Elon Musk and the President hollow out the state funded enterprises and roll-back many of President Biden’s spending plans. We are mindful however that, if they do not kill the US market in the process, the reset might set the US in a much better position for growth.

In the meantime, however, the former ‘un-investable’ regions may offer the best opportunities. With attractive valuations and strategic policy shifts, Europe and China are positioning themselves as serious contenders in the race for market leadership. Investors may soon find that the most rewarding opportunities lie not in the past leaders, but in the rising challengers poised to take the crown.