International Forces are Redrawing the Risk–Reward Balance

A fast tour of 2025’s global market surprises—from tariff whipsaws and a precious‑metals surge to international outperformance—and what they might mean for 2026.

Mary MacNamara  

Hello everybody and welcome to Cents of Security. Today we are going to talk about the international outlook with Russell Burns from Finimize. Welcome Russell. How are you?

Russell Burns  

Hey. Hi Mary. I’m really good, thanks. Yeah, looking forward to this.

Mary MacNamara  

Yeah, me too. Okay, so let’s just go right into it. So, from a global perspective, what were the three biggest surprises you found in 2025 for investors and how do those set the stage for international markets this coming year?

Russell Burns  

Yeah, thanks Mary. So, I’m going to measure the surprises by the size of market moves. So first up, I’m going to go with the President’s tariffs announcements on Liberation Day. That initially scared equity investors as there were fears that would cause a global economic slowdown and inflationary pressures. And then we saw a sharp reversal back up as the tariffs were reported down, the realization that the inflationary pressures weren’t going to be so bad and the US economy managed to hold up much better than feared. Next up, the strong move in precious metals. Gold’s near 65% rally and silver’s 147% were quite astonishing.

The reason cited include increased geopolitical risks, concern about the independence of the Federal Reserve, uncontrolled government spending, undermining the value of fiat currency and a shift towards real assets. And then third up, I’m going for international stock indexes at generally outperform us ones. That’s the first time in some years that diversification outside of the US really rewarded investors. And why has this finally happened? Well, you had the weak dollar, which dropped around 10% against a basket of currencies.

The first time it had really come under pressure like that in more than a decade. Valuations finally counted Greece, Spain and Poland led European stock markets. And the realization that it’s not only in the US where AI beneficiaries were found, Taiwan was led by the heavyweight TSMC. Korea, not only by its cheap valuations, but its exposure to the memory makers, major AI beneficiaries alongside a corporate reform program, which drove a 75% return in the index, second only behind Columbia. And looking into 2026, most of these factors still remain relevant. The years started off with increased geopolitical risk and tariff threats. And that uncertainty remains supportive for precious metals.

And there’s still talk of lower interest rates in the US despite higher than targeted inflation and that could pressure the dollar further. And if that happens, it’s another reason for international stocks to do well once again.

Mary MacNamara  

Yeah, good point. How are the key macro forces growth, inflation and central bank policy diverging between the US, Europe and major Asian economies.

Russell Burns  

According to Goldman Sachs, global real GDP is expected to be about 2.8%. The US is kind of leader of developed markets at 2.8%. The Eurozone and the UK is about 1.4%, and Japan at 1.2 in the emerging markets, China with this 5% growth in India, 7.6% are leading. India’s going to post the strongest growth, but it’s got the highest inflation and interest rates and its stocks trade at higher valuations too. China’s 5% growth is pretty much all export led as the domestic economy remains weak. When we look at earnings growth, which is a key driver of stocks, it’s a slightly different picture. S&P 500 earnings are expected to grow around 12% in 26. Europe Stoxx 5%, and Asia-ex Japan around 19%.

As for inflation, it’s pretty much contained in Europe, it’s sitting around, its 2% target and no rate cuts are expected from its central bank in 2026. It has cut eight times since the pandemic and interest rates are sitting already around 2%.

Despite inflation running ahead in the US, we have seen rate cuts already as the fed’s been focusing on. It’s on the employment part of its mandate. But we’ve got a new fed governor starting his role sort of later this year, and he’s likely, or she’s likely to be more attuned to the president’s thinking, so expectations are for more rate cuts this year. Japan’s different, its inflation is running hot. It’s exceeded, its 2% target for nearly four years. And its interest rates are only at three quarters of a percent. It’s has ever a pretty unique case. Japan hiked rates in 2025 and it’s currently the only central bank among major developed countries expected to hike again in 26.

So, looking for an advantage from that. From the macro perspective, earnings growth in the US continues to deliver and that’s attractive. It remains the global tech leader. With more rate cuts expected, that should be supportive for stocks, but alongside all the uncertainty and geopolitical risk, a diverse portfolio across regions and assets does seem sensible, and that should likely include some Japan, Europe, and emerging market exposure. Personally, outside the major emerging markets, I quite like Korea. It’s got a corporate reform program and memory exposure. And India, stocks do look expensive, but they have little AI exposure, so it could act as a diversifier as well.

Mary MacNamara  

All right, so for newer investors trying to go global, how should they think about the impact of currency moves or should they and interest rate differentials on international returns? Any surprise rules of thumb to avoid some common pitfalls?

Russell Burns  

You also say, should they, and that really is an important one.

Mary MacNamara  

Yeah.

Russell Burns  

Currencies are notoriously hard to predict. Even for the pros, you do need to, you should be aware that FX fees on certain brokerage platforms can be really uncompetitive, not IBKR mind you, but it’s really something you have to be aware of when investing in international stocks, those high charges can seriously undermine returns. One way to avoid FX transaction costs is by using ETFs or funds. You can find many country and sector ETFs that are based in a variety of currencies, so depending on your own base currency, you should be able to find a suitable one, and that’s the easiest way to deal with FX transaction costs.

The ETF and fund providers can trade at a much more competitive bid offer spread than you can. As for interest rate differentials, it’s probably good to know some macro basics like what the interest in inflation rates are in the countries you plan to invest in.

But unless you are planning on trading FX or foreign bonds, I wouldn’t worry too much about the rate differential. Saying all that currency moves can have a serious impact on investment returns. Last year, just we mentioned that the US dollar fell about 10%, one of its worst performances in a decade, and that bumped up returns of international stocks for US investors if they’d invested on a so-called un-hedged basis, i.e. taking on that FX risk. But as some of those drivers from 2025 still look like they’re present in 2026, we could see more of the same. Still, if you wanted to invest overseas on a hedge basis, i.e. taking away under the FX risk. Many of those ETFs and funds do that too. ETFs are so clever these days with so many different providers and that way whether the currency moves or not, you can just get exposure to the underlying price move. There’s another perspective for advanced traders; you could look to trade international stocks on margin. And that protects you from the FX risk, although that would involve borrowing costs.

Mary MacNamara  

Really good points there. Okay. So where do you see the most compelling opportunities and biggest risk in emerging markets versus developed markets this year?

Russell Burns  

Yeah. So. Let’s first consider the two big emerging markets, China and India. China’s progress on AI and robotics is impressive, but as I mentioned, the domestic economy continues to struggle and it’s 5% growth comes mainly from exports, so it is pretty difficult to be excited about its domestic market outside AI, but still having some China AI and robotics exposure does look sensible. India stocks have been lagging other markets over the past year. But it doesn’t have that much AI exposure, so as I mentioned, it could act as an interesting diversifier. However, its currency continues to remain under pressure even against the dollar. Personally, I’m looking at Korea. There’s a really interesting corporate reform story driven by the new government, and it’s two biggest stocks.

Samsung and SK Hynix account for more than 40% of the index, and they were the key drivers of the cost, be the main index 75 performance in 2025. It’s their exposure to memory that’s seeing massive demand from AI servers, which is really boosting their profits.

You may have seen Micron’s rally. They basically have the same business, and if demand for memory remains strong through 2027 as expected, those stocks in the Korean market could have a really strong 26 too. For the developed market, we’ve already discussed the strong earnings growth in the US.

As for developed markets, I’ve already discussed the strong earnings growth in the US, and it still accounts for 60% of the global stock market capitalization. Plus, we’re seeing some rotation into the mid-caps in the US that should benefit from the domestic economic recovery and lower interest rates. Outside in the us, Japan, and Europe and developed markets both look reasonable too. ‘

But as for the biggest risks, I’d like to highlight valuations are rich compared to history across all stock markets right now, if earnings keep going up, that should be fine, but if we see a slowdown, then those high valuations are really going to matter. AI remains a really big opportunity, but it’s a big risk if AI demand and spending drop away. It’s estimated that around half of global GDP is coming from AI spend, so any slowdown there is going to be impacting global stock markets. And of course we’ve got geopolitical risks. Any escalation in trade wars or more s would upset markets again.

Mary MacNamara  

Looking at global sectors, including AI, are there any country or region standouts where those themes have the strongest policy or earnings tailwinds.

Russell Burns  

Yeah, AI spending continues to be the main driver of global growth, and it’s not just tech companies that are benefit benefiting from AI. These data centers require huge infrastructure to be built. There’s demand for turbines, nuclear energy, electrical equipment, and water-cooling equipment. AI is impacting copper demand too. Industrials are benefiting not only from the AI rollout, but also the onshoring of production in the US. And with regards to regions, as I touched, there’s many regions benefiting from AI spend. With regards to regions from tech and AI, there’s globally, there’s many beneficiaries, but there’s a few other sectors worth noting as well.

Defense, this uncertain geopolitical backdrop implies that spending on defense is going to stay. Again, you can find companies in the US, Europe, and Japan that are benefiting from this increased spending. One way you can play this is through a global defense ETF, that provides broad-based exposure to the theme. And finally, you’ve got metals and mining. Copper demands been picking up as well as precious metals. And finally, I think it’s worth considering metals and mining. It’s not just been gold and silver that have been moving higher, copper’s seeing a pickup in demand from this AI infrastructure spend. That means global mining stocks could continue to perform well, especially if this move to real assets continues.

Mary MacNamara  

So geopolitical tensions and supply chain realignments continue to reshape trade routes and capex decisions. Where might these dynamics create investible opportunities or hidden risk across the regions in 2026?

Russell Burns  

We’ve discussed uncertainty around geopolitics already, and it’s really hard to know what’s going to happen on so many fronts. But for sure, when an escalating trade war would likely bring back fears about inflationary pressures and of weaker stock market. Still, I’ve already mentioned those global defense ETFs, but you could go a little bit niche and look at these drone stocks.

The issue is that the valuations on these companies look a little bit rich, but supply chain realignment and onshoring is providing an investment boom. Reports suggests that TSMC is set to invest more than $200 billion into the US. These are massive amounts and massive inflows. It could be inflationary in the short term. TSMC has already said that manufacturing chips will cost more in the US than in Asia due to higher labor and productivity due to higher labor and regulatory costs. But longer term, it could boost US growth and productivity.

One of the bigger risks is that the new Fed chair is going to be willing to cut rates despite higher inflation, more in sync with the president’s wishes, and that could lead to a weaker dollar and a continued rally in gold. That’s why despite its stellar rally in 2025; it probably still has a place in a portfolio. But the biggest risk that I can see would be in light of increased geopolitical tension. China thinks it has the right to take over Taiwan. That would likely be a catastrophe for markets as it still manufactures locally, most of these advanced chips that AI needs.

Mary MacNamara  

Yes, I agree with that one. So, if we follow an investment calendar approach, what are the must watch global dates? Or some of them 2026 Central bank meetings, elections, earning seasons, or index rebalances. And how should beginners prepare around those events without overtrading?

Russell Burns  

First up, if you are a beginner, actually trading around short-term events is difficult. Day trading is dominated by computers and AI algorithms that can typically interpret events and react quicker and more accurately than you can.

So, as you said, not over trading is really important advice. However, if you do the preparation work before an announcement and have a view of what’s likely to happen. Then you can be positioned ahead of or take a trade after the announcement. Just be aware that the positioning of traders ahead of time is sometimes as important as the actual announcement itself, but what you really need to avoid is trading based on emotional decision making, as that usually doesn’t end well.

Investing with a longer-term approach is easier and less taxing emotionally. However, with all that in mind, it is worth being aware of upcoming major events or announcements as they’re likely to help understand why markets are moving and for sure. With that in mind, earning seasons are always important, especially for market leaders like Nvidia, which can set the tone for specific sectors for the following weeks and months.

You’re probably aware there’s four quarterly earning seasons through the year in the US and it’s a similar in most other major markets. Be aware it’s not only the results that matter, but also the guidance or commentary for management that’s more likely to move the share prices. So, you’d have to listen into those calls. Interestingly, you can now use AI to download transcripts and with the right prompts, it can interpret the call and outlook for you. But even then, if you get everything right, earnings beats and positive commentary can still steer a stock sell off if too many short-term traders are already positioned, anticipating that. Now, that can present an opportunity to buy a stock at a lower than warranted price, but you have to be really confident and prepped beforehand.

Aside from that bigger picture, elections can be important too. This year, I think there’s two big ones to watch in the US, we’ve got the midterms expected in November and in Japan there’s a snap election expected to be announced next month. And the new Prime Minister’s policies to lower taxes and increased spending have already caused bond market ruptures as Japan’s 40-year bond yield hit a record high earlier this week. Next up is Central Banks.

What’s really worth watching this year is there’s a new Fed chair, and this person’s likely to have different views about the suitable level of interest rates than the current one. So, it’s going make these first meetings very closely watched. The second central bank probably worth watching is Japan’s in light of it’s likely to be the only one hiking rates this year, and the potential impact not only on bond, but also stock markets and currencies. Finally, you’ve got the rebalances, the index rebalance you talked about.

I mean, you’ve got four main events annually from MSCI and Russell indices. These were important events and could impact flows. I kind of like to be aware if I can be of the new entrance exits or the waiting changes once they’re announced, but it’s more to understand why share price in a company I’m following may be moving rather than necessarily trading around it.

Mary MacNamara  

Good Russell Burns from Finimize. Thank you so much. Excellent. Love it. Thank you so much for being with us today.

Russell Burns  

Thank you for having me, Mary.