A World Reorganizing Into Three Poles
The global economy is undergoing a profound structural shift — one that can best be understood through the lens of a tripolar world. Regional integration is accelerating across three major blocs: Europe is drawing closer together around defense, Asia is deepening trade ties, and the Americas are forging their own path. Geopolitical conflict, including the ongoing Iran war now in its sixth week, has not disrupted this trend — it has accelerated it.
This framework is essential for understanding where capital is flowing, where growth is emerging, and why the long-standing dominance of U.S. financial assets is beginning to erode.
The Secular Leadership Change Away From the U.S.
A global growth long cycle that began in 2023 remains intact. That cycle is fueling a global earnings expansion that supports equities — but critically, the benefits are no longer concentrated in the United States.
The numbers tell the story clearly. Year-to-date, the U.S. is the worst-performing major region, down approximately 4%. Meanwhile, ACWI ex-US is up over 1%, and emerging markets are posting modest gains as well — a spread of roughly 500 basis points. This is not a blip. It represents the continuation of a secular leadership change that defined 2025 and is carrying forward into 2026.
The U.S. is derating, and that process is both necessary and healthy. American equities carried a premium valuation while the country increasingly behaved like an emerging market — a phenomenon that might be called the "EM-ification of America." The Iran conflict has put that dynamic on steroids.
The U.S. forward price-to-earnings ratio has fallen from 23 times in the fall to 19 times today — the cheapest the market has been in five years. Interest rates relative to other countries are rising, and the dollar is declining. This multi-dimensional loss of premium across U.S. financial assets is a process that will likely play out over years, not months.
A Benign Derating With Resilient Earnings
What makes the current U.S. derating particularly notable is its benign character. Forward earnings estimates have actually risen for five consecutive weeks, reaching record high territory at around 12.7% growth. There is a genuine tug-of-war between the falling PE multiple and the rising E — and so far, the repricing has occurred in oil, rates, and growth outlooks, but not yet in meaningful earnings revisions downward.
This creates an interesting tension. Big tech has derated significantly. Nvidia, the poster child of the AI revolution, now trades at a forward PE below that of the overall stock market — a striking anomaly for a company at the center of the most transformative technology trend in a generation.
The sensitivity of the modern economy to oil prices is also far less than it was 20, 30, or 40 years ago. Companies and consumers can work through elevated oil prices as long as they are not sustained — and there is strong reason to believe they will not be. All parties in the Iran conflict need a deal, and a resolution, whether it arrives this week or next, will bring oil prices back down.
Where the Opportunities Lie: China, Latin America, and Thematic Plays
Within emerging markets, not all regions are created equal. The broad EM space is less attractive than targeted allocations. The most compelling opportunities lie in China and Latin America.
Latin America has been the best-performing region within emerging markets, driven in large part by the composition of its index — roughly a third is materials and energy. The EM Latin America ETF (IOLF) has been a standout performer.
China, while a laggard recently, is setting up well for what comes next. It is a global leader in renewable energy and automation — two themes that are converging with the defense imperative emerging from current geopolitical conflicts. The Iran war, much like the Ukraine conflict before it, has underscored the importance of autonomous production and autonomous weaponry. This fuses together the three dominant investment themes of our era: AI, climate, and defense.
The Convergence of AI, Climate, and Defense
One of the most powerful insights about the current moment is the convergence of major secular trends. AI, clean energy, and defense spending are no longer separate investment themes — they are becoming one integrated story.
The push for renewables is being accelerated by conflict. Emerging markets stand to benefit enormously, as they can leapfrog the fossil fuel era that shaped the developed world. Clean energy ETFs like the Invesco Solar ETF (TAN) reflect this dynamic, posting gains of 16% year-to-date and a remarkable 62% since January 2025 — even amid political headwinds.
Automation and robotics represent the other side of this convergence. The need for autonomous systems in both industrial production and military applications is driving sustained investment, both public and private, across all three poles of the tripolar world.
Looking Ahead
The investment playbook for the years ahead favors an underweight to U.S. equities within a global portfolio and an overweight to the rest of the world — particularly emerging markets. Geographically, China and Latin America offer the most compelling risk-reward profiles. Thematically, clean energy and automation stand out as the sectors most likely to benefit from the structural forces reshaping the global economy.
The retest currently underway is not a reversal of these trends. It is a confirmation. The tripolar world is not a theory waiting to be validated — it is the reality that capital markets are already pricing in, one basis point at a time.