LONDON, Feb 12 - A growing perception that U.S. policy under President Donald Trump has unsettled long-standing economic and security arrangements is driving allied nations to act more collectively, and markets are taking notice.
Portfolio managers and strategists say the prospect of more proactive policies and trade deals that do not rely on the United States is encouraging investors to expand exposure to equities outside the U.S., energy-sector stocks and certain currencies, notably the euro and the Canadian dollar.
Market reaction and investor positioning
Seema Shah, chief global strategist at Principal Global Investors, which manages about $594 billion in assets, said the current U.S. stance has separated Washington from many partners but, in doing so, has strengthened the macroeconomic picture elsewhere. "This is not about sell the U.S., but about remembering that there are other opportunities outside the U.S.," she said.
Principal Global Investors has narrowed its focus on international equity markets, Shah added, citing encouraging earnings momentum in Europe and Asia. JPMorgan Private Bank’s Madison Faller expects major equity markets and emerging markets to post double-digit earnings growth in 2026 as momentum shifts away from what she called U.S. exceptionalism.
Performance so far this year underscores the shift. London’s FTSE 100, which has a strong international composition, has passed the 10,000 level for the first time and is up 5% year-to-date, outpacing a 1.4% rise in the S&P 500. In Europe, of the 52 companies in the STOXX 600 that have reported fourth-quarter results to date, more than 73% beat expectations, according to LSEG I/B/E/S - a stronger showing than a typical quarter where about 54% exceed forecasts.
Policy and trade responses beyond the U.S.
Voices from policy and business circles suggest that a more assertive, coordinated response from so-called "middle powers" is taking shape. Former Bank of England governor Mark Carney’s remarks at Davos in January about middle powers acting together have resonated with investors and policymakers. The European Central Bank is also expected to present a plan aimed at bolstering the euro’s international role at the Munich Security Conference this week.
BNP Paribas highlighted the trend with its European Strategic Autonomy fund, launched last May and worth 600 million euros ($713.3 million). The fund targets themes such as defence, industrial resilience, resource independence and technology - areas supported by sizable European investment plans, the bank said.
Still, several strategists caution that replacing U.S. trade links will not be straightforward. Non-U.S. agreements - including the EU’s prospective deal with India, the Mercosur bloc arrangements, and an initial trade understanding between Canada and China - carry a meaningful signalling effect but will require time before they materially alter trade patterns, according to market participants.
Security, supply chains and fiscal responses
The COVID-19 pandemic, Russia’s war in Ukraine and associated responses, as well as U.S. tariff policies have highlighted vulnerabilities in global supply chains and economic dependence, fostering greater cohesion among other countries. Recent incidents, including threats from the U.S. President over Greenland, have the potential to accelerate this trend, supporters say.
Those developments could strengthen calls for more fiscal stimulus worldwide and even increase momentum for joint European bond issuance. Defence-related equities have been among the visible beneficiaries of this shift - they have risen about 200% since February 2022. Britain is considering participation in a second potential multi-billion-euro EU defence fund, reflecting growing alignment on industrial and security priorities.
Energy, technology and industrial sovereignty
Market strategists point to energy production as a particularly tradeable theme amid the emphasis on critical resources and national resilience. Ross Hutchison, head of euro zone market strategy at Zurich Insurance Group, noted that many countries will undertake build-outs to strengthen resilience, a trend that has helped push European energy stocks toward levels not seen since 2008.
Allianz Global Investors chief economist Christian Schulz suggested Europe may broaden its sovereignty agenda into digital services, security and health - sectors where local capabilities and control are increasingly seen as strategic priorities.
EU industry chief Stephane Sejourne recently proposed a "Made in Europe" approach in an article co-signed by CEOs of major companies including ArcelorMittal, Novo Nordisk and Continental. The concept would set minimum European-content requirements for locally manufactured goods. The proposal has divided EU member states, but it exemplifies a longer-term push to reinforce domestic industry through trade rules and spending.
Currency and market implications
FX strategists expect favourable outcomes for several currencies if deregulation, de-bureaucratisation and pro-growth fiscal measures materialise. Thierry Wizman, Global FX & Rates Strategist at Macquarie Group, said the Canadian dollar, Japan’s yen and the euro could benefit under such a scenario.
JPMorgan Private Bank’s Madison Faller summed up the strategic shift: "Middle powers are seizing strategic autonomy, forging partnerships that align with their interests and the demands of the moment."
Outlook and caveats
Analysts and investors acknowledge that while there is growing momentum for more sovereign-focused policies and regional trade arrangements, their economic consequences will unfold only over time. In the near term, markets are pricing in greater opportunity outside the United States, particularly in sectors tied to defence, energy, industrial resilience and technology. Yet the durability and speed of these shifts remain uncertain, and established U.S. trade links and market depth will be hard to replace quickly.
($1 = 0.8411 euros)