Insights
By: Graham Wainer
Why America will remain the go-to Investment destination in 2025
Graham Wainer, Stonehage Fleming CEO Investment Management
Trump’s vacillating efforts to Make America Great Again by imposing onerous tariffs on China, Canada and Mexico at the weekend and then giving its two neighbouring countries a 30-day reprieve is upending the international order and could well hurt America itself, given that the tariffs would apply to some 50% of US trade.
https://www.cfr.org/article/what-trumps-trade-war-would-mean-nine-charts
The prospect of a four-year drama-ridden Trump presidency and questions surrounding the sustainability of the record-breaking US stock market have prompted deliberations over whether investors should reduce their exposure to US equities and diversify their portfolios across other developed markets, such as Europe. The weekend’s tariff announcement is likely to spur further debate.
Shifts in investment flows are already happening. January’s stock market performance saw Europe outperform the US, raising the question: Will the US lose its leadership as an investment destination? We believe not and expect the US to remain the go-to investment destination this year, backed by its economy’s size, philosophy and culture of exceptionalism, which has gained new impetus from Trump’s intention to “make America great again” and its military might.
The US stock markets have a remarkable track record of outperforming their global counterparts. Even if US equities moved sideways, the European markets would take a decade to catch up. Since 2004, US equity markets have delivered a 10.4% return compared to the MSCI World ex-US's 6.2%. When compounded over time, this four-percentage-point gap represents a significant divergence in wealth creation across developed markets and a considerable capital growth advantage for investors in the US.
Source: Bloomberg, December 2024
The Earnings Advantage
The most compelling argument for US investment leadership lies in corporate earnings growth. When investing, you get what you pay for, and you pay for what you get, and since 2010, US companies have grown earnings at an impressive 13.6% annually. That compares to just 6.5% for the rest of the world. This stark difference reflects American companies' superior ability to leverage technology, optimise margins, and capture consumer spending.
It’s no accident that 65% of the world's top 100 companies are American. The US corporate sector's "fail fast" culture, which contrasts sharply with Europe's more regulatory-driven approach, enables rapid adaptation to changing market conditions. This adaptability, combined with robust consumer spending and technological efficiency, creates a virtuous cycle of growth and profitability that continues to attract global capital.
The US investment case becomes even more convincing when viewed against the challenges facing other major economies. Europe grapples with structural issues, including high debt, productivity deficits, and political gridlock. The region’s regulatory environment, often captured in the phrase "Americans innovate, China replicates, and Europe regulates," further compounds its challenges. Pressure to increase spending on energy security and defence, which will likely result in higher taxes, will further constrain growth and innovation.
America’s Technological Leadership
In addition, the region's technology gap with the US continues to widen, particularly in critical areas like cloud computing and R&D investment. The fact that, as of 2024, North America has 615 unicorns - billion-dollar private companies - versus Europe’s 171, according to StartupBlink, illustrates this stark divide. While Europe boasts some world-class companies, particularly in healthcare and luxury goods (the so-called 'GRANOLAS'), these success stories remain exceptions rather than the rule.
Meanwhile, China continues to wrestle with property market challenges, deflationary pressures, and demographic headwinds. Despite recent fiscal and monetary stimulus packages, Beijing has yet to address fundamental issues, such as the need for a robust social security system that could help unlock household savings and boost domestic consumption. Without these structural reforms and facing increasing global protectionist pressures, China will be hard-pressed to reassert itself as the global economy’s growth engine and an investment destination that cannot be ignored.
Challenges and Opportunities Ahead
While the investment case for America remains strong, the evolving global and local landscape will inevitably introduce further uncertainties and risks. The global economy is entering a new phase of complexity, volatility, and geopolitical change. Traditional growth drivers like globalisation and cheap labour are receding, while new catalysts like artificial intelligence are emerging as potential game-changers.
The incoming Trump administration brings both opportunities and challenges, with tariffs and immigration policies set to create volatility, particularly in the short term. However, history has shown that the US market's trajectory transcends political cycles. The American economy's fundamental strengths – its innovation ecosystem, market efficiency, and adaptive capacity – will remain intact regardless of political leadership.
Looking Ahead
The US market will undoubtedly experience periods of volatility and perhaps even negative returns. However, for investors, the US market's combination of leadership in technology and innovation, earnings strength, and economic resilience should continue to offer attractive investment opportunities, particularly relative to other investment destinations facing significant macroeconomic headwinds.
Disclaimer: This document has been prepared for information purposes only and does not constitute a personal recommendation or advice or a solicitation to buy any product or service. It does not take into account the financial circumstances, needs or objectives of the recipient. In addition to the information provided, you may wish to consult an independent professional adviser. Past performance is not a guide to future performance. Whilst every effort is made to ensure that the information provided is accurate and up to date, some of the information may be rendered inaccurate in the future due to any changes. The distribution or possession of this document in certain jurisdictions may be restricted by law or other regulatory requirements. Stonehage Fleming Investment Management South Africa (Pty) Ltd is authorised and regulated by the Financial Sector Conduct Authority (South Africa) as a Financial Services Provider (FSP No. 42847). Opinions expressed in this document may be changed without notice at any time after publication. We therefore disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable directly or indirectly to the use of or reliance upon the information. Approved for issue in South Africa by Stonehage Fleming Investment Management (South Africa) (Pty) Ltd (FSP No. 42847). © Stonehage Fleming 2025.