A Structural Shift in Global Markets
The global investment landscape is undergoing a secular transformation. The world is increasingly organizing itself into three major poles of regional integration — Europe, Asia, and the Americas — each drawing closer together around distinct imperatives. Europe is integrating more tightly around defense. Asia is consolidating around trade. And the Americas are finding their own gravitational center. This tripolar dynamic is not a temporary dislocation; it is the defining structural trend of global markets in the mid-2020s, and it carries profound implications for where capital should be allocated.
The geopolitical turbulence of recent years, including the Iran conflict now in its sixth week, has not disrupted this thesis — it has accelerated it. What we are witnessing is a retest, not a reversal, of the key themes that have been building since 2023: a global growth long cycle that remains intact, a global earnings cycle that supports equities, and most importantly, a secular leadership change away from the United States toward the rest of the world, led by emerging markets.
The United States Is Derating — And That's Necessary
The US has been the worst-performing major region in 2026, down roughly 4% year-to-date. By contrast, the ACWI ex-US index is up over 1%, representing a 500-basis-point performance gap. Emerging markets are also in positive territory. This divergence is not noise — it reflects a fundamental repricing of American assets.
The US forward price-to-earnings ratio has compressed from approximately 23 times in the fall to around 19 times today, making it the cheapest the market has been on a forward PE basis in five years. This derating is actually benign. Earnings estimates have risen for five consecutive weeks, with forward earnings growth reaching 12.7% — record high territory. The tension between falling valuations and rising earnings creates what some analysts describe as a tug-of-war between the PE and the E.
What is happening is best described as the "EM-ification of America" — the United States carried a premium valuation while increasingly behaving like an emerging market in its policy unpredictability and institutional friction. The Iran conflict has put that process on steroids. The PE premium is compressing. Interest rates relative to other countries are rising. The dollar is weakening. This is a multi-year process, not a single-quarter event, and it argues for remaining underweight US equities within a global portfolio.
Where the Opportunities Lie: China, Latin America, and Thematic Plays
Not all emerging markets are created equal. The broad EM space requires selectivity. The most compelling opportunities right now sit in two areas: China and Latin America.
Latin America has been the best-performing region within emerging markets, largely because roughly a third of its index weight is concentrated in materials and energy. The EM Latin America ETF (IOLF) has been a standout performer on the back of elevated commodity prices, including oil at approximately $100 per barrel.
China, while a relative laggard in recent months, is setting up well for the next phase. China is a global leader in renewable energy and automation — two themes that are being powerfully reinforced by current geopolitical conditions. The Iran conflict, much like the war in Ukraine before it, is driving demand for autonomous production capabilities and autonomous weaponry systems, while simultaneously accelerating the push toward energy independence through renewables.
The Convergence of AI, Climate, and Defense
One of the most important developments emerging from the current geopolitical environment is the fusion of three previously distinct investment themes into a single, reinforcing trend. Artificial intelligence, climate and clean energy, and defense spending are converging. Autonomous systems require AI. Energy security demands renewables. Defense modernization needs both.
This convergence is driving continued spending — both public and private — across all three poles of the tripolar world. Fiscal commitments to defense in Europe, industrial policy in Asia, and energy investment across emerging markets all point in the same direction: sustained capital expenditure in automation, robotics, and clean energy infrastructure for years to come.
The numbers bear this out. The Invesco Solar ETF (TAN) is up 16% year-to-date and has surged 62% since early 2025, despite the political headwinds and shifting policy signals around clean energy in the United States. The market is telling us that the economics of the energy transition are increasingly independent of any single government's posture.
Big Tech Is No Longer Expensive
Perhaps the most striking valuation anomaly in today's market is in big technology. The derating has hit the mega-cap tech stocks significantly. Nvidia, the poster child of the AI revolution, now trades at a forward PE that is actually below that of the overall stock market. For a company at the center of the most transformative technology trend in decades, this discount is remarkable and suggests that selective opportunities exist even within the underperforming US market.
Oil Sensitivity Is Not What It Used To Be
A common concern is that elevated oil prices will derail the global economy and consumer spending. But the sensitivity of GDP and consumer activity to oil prices is dramatically lower than it was 20, 30, or 40 years ago. The economy and corporate earnings can work through elevated energy costs as long as the spike is not sustained — and with all parties to the Iran conflict needing a resolution, a deal appears likely in the near term.
When oil prices do normalize, the aftermath will be bullish for broad emerging markets. Many developing economies have the opportunity to leapfrog the fossil fuel era entirely, moving directly into renewable energy infrastructure. This structural advantage, combined with younger demographics and faster growth rates, reinforces the case for emerging market outperformance over the medium to long term.
Conclusion
The investment playbook for the coming years is clear in its broad strokes: the rest of the world is gaining at America's expense, and this is a multi-year trend, not a tactical trade. Geographically, emerging markets — particularly China and Latin America — offer the most compelling risk-reward. Thematically, the convergence of clean energy, automation, and defense spending creates durable tailwinds that transcend any single geopolitical event. The US is not broken, but it is normalizing — shedding a premium valuation it no longer deserves. Investors who remain anchored to the old regime of US exceptionalism risk being on the wrong side of the most significant leadership rotation in global equities in a generation.