Chief Investment Strategist highlights macro factors, notes global exposures to AI mega trend
Every month at WP we go deep on a subject that matters to Canadian advisors. This May we’re exploring global markets.
Craig Basinger is shifting his view on global markets. The Chief Investment Strategist at Purpose Investments recently published a report outlining the firm’s macro views. The report noted a shift to slight overweights in international exposure, with an emphasis on Japan, and overall emerging markets exposure. Basinger explained that macro forces within these markets as well as strong tailwinds from what has become a global AI mega trend are prompting this reconsideration.
Basinger explains that in international developed markets, the narrative for the past 18 months has been a shift away from stability towards growth. Fiscal stimulus has opened up new multiplying investments, notably in Europe. Governance changes have incentivized corporate earnings growth, notably in Japan. In emerging markets, he notes, the quality of fiscal management has front-run the developed world and offered investors a chance for real diversification with some exposure to core global trends.
“International has been cheaper forever. That’s not anything new. That’s not a reason to say now is the time for international. Because you could have said that for the last 10 years or so and obviously been proven pretty wrong. But there’s a few things that we think are sort of afoot that make it a little bit much more interesting, which why we’ve leaned into more of the international side,” Basinger says. “Before 2024, most of earnings growth globally was in America… In 2025 it went global. Even if markets weren’t growing as fast as America, they had narrowed the gap.”
Developed markets following America’s lead
A narrowing gap in earnings growth, and a significant discount on equities, piqued the interest of global investors who shifted some of their profits on US names into global stocks. On the fiscal front, too, international developed markets followed the US lead. Basinger notes that the US flood of fiscal stimulus that began in the COVID-19 pandemic didn’t slow the way it did in much of the rest of the developed world. In the past 18 months, Europe, Japan, and Canada all turned the money faucet back on, benefitting domestic equity markets.
Governance changes have been significant, as well. European leaders have signed the ‘One Europe, One Market’ roadmap, which commits the trading bloc to stronger competitiveness. Given that continent’s longstanding struggles with encouraging entrepreneurship, Basinger sees even this level of talk as a positive sign.
Japan has arguably been a more significant governance story. Using the governance data published in ESG reporting, Basinger notes that significant improvement by stocks on the Nikkei. Shareholders are increasingly prioritized now in Japanese companies. The emphasis on stability at all costs has been shifted into a mode of corporate growth, resulting in better equity returns.
EM fiscal prudence & AI exposures
In May of 2024 Basinger and his team added emerging market exposures to their core active fund for the first time. On a macro level, that’s driven by strong monetary management in a number of key emerging markets. He notes that many of these countries showed much more prudence around rate cuts, rate hikes, and inflation management than developed countries, in part because they lacked the borrowing capacity of developed nations. More recently, EMs have also become a components play in the AI mega trend.
At the end of April of this year, the three largest countries represented on the MSCI emerging market index were Taiwan, China, and South Korea. Those three markets now make up nearly two-thirds of the full index. While their markets are diverse, Taiwan has seen a recent rise thanks to its specialist chip and semiconductor manufacturing. South Korea has two of the three largest memory manufacturers in the world. China has advantages both in specialized manufacturing and has benefitted from an AI scaling program of its own. Basinger admits that this tech exposure wasn’t what attracted him to EMs in the first place, but he likes the way EM, and other international, tech names can diversify from the US hyperscalers.
While the core of the AI narrative is still based in the United States, in its hyperscaling data center builders and in component names like Nvidia, Basinger notes how Taiwan, China, South Korea, and Japan have all positioned themselves as key players in the hardware supply chains of AI. That positioning can help investors who want to retain some AI exposure but want to diversify away from concentration in a few large US tech names.
Risks & takeaways
For all his positivity about international and emerging markets, Basinger sees risks to the outlook. He notes that recession is always a risk factor for these markets. The energy shock from the Iran war has disproportionately impacted some emerging markets as well, though the predicted catastrophes haven’t yet appeared.
Beyond global risks, Basinger notes that the attractive valuations that once made these markets more compelling have risen somewhat. While there is still a delta between international and emerging markets and the United States, the US market still has advantages in entrepreneurship and shareholder-friendliness that Basinger doesn’t think investors should discount. Advisors, he says, need to keep this in mind even as they consider following his lead into a shift away from US dominance in equity allocations.
“The biggest thing that we have noticed is the that most portfolios are still over their skis on America from an exposure perspective. And we also have that proximity because of where we live in Canada,” Basinger says. “I’m not saying you need to have more international than you do US. They’re still the biggest economy and have some amazing companies down there. But the time to be tilted in that one direction, which would have worked out really well for the previous 14 years, is we think over. I think a better balanced portfolio is the way to go.”
