What’s Next for Global Markets? Takeaways from the IMF/World Bank Meetings.
What does the U.S.’s trade and uncertainty shocks mean for global markets and economies? Investors attending the IMF / World Bank meetings tried to address these issues in an environment of heighted macro volatility. Investor conviction was low given the wide range of macro outcomes, including talk of a possible secular inflection point in global trade and geopolitics. What follows is a brief recap of our impressions from the event.
The rotation away from US assets has been the story of 2025, with US stock returns trailing the rest of the world by 14 percentage points so far this year – the widest for such a period since 1993* (see Figure1). This so-called “sell America” trade also involves expectations for further dollar weakness, which traditionally has been supportive of emerging markets (“EM”) as long as the US avoids a recession. There was an active debate about what is driving the wide US underperformance. If markets are seeing a capital repatriation – consistent with the breakdown in the historical relationship between bond yields and the dollar – then the runway for this ex-US rotation is probably long (see Figure 2). The reason is that the starting point involves a large US overweight exposure by foreign investors, which they accumulated over many years.
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Second, we learned that US policymakers are receptive to business concerns and market pressures, so there is a path to tariff de-escalation and policy adjustments. This observation goes beyond the market-friendly talk at the IMF sessions about the future impact of deregulation, tax policies, and pledges to make government spending more efficient. It is a view validated by signs that the US is open to dialogue with China and other trading partners over tariffs, as well as to the string of tariff exemptions seen in recent weeks. The challenge for the participants is that the final destination for trade flows, and thus the extent of disruption and the drag on growth, remains unclear.
Third, the macro framework for many of our conversations about the US was of mild stagflation on expectations for slower growth and sticky inflation. That means there is only so much US monetary policy can do and the burden of any adjustment would fall on the fiscal side as a countercyclical tool. Beyond the US, large economies like Europe, China, and India were perceived to have more fiscal room and large-enough domestic markets to offset and absorb the negative growth shock from the trade war – positioning them as potential winners. In EM, most participants saw better risk-reward in rates, as central banks had room to cut given the high level of rates. In most cases, the trade war shock is seen as negative growth and deflationary – a likely headwind to stocks.
Lastly, we noticed that foreign investors were starting to question whether the dollar and Treasuries still deserve their reputation as safe-haven assets. This shift in perception was driven in part by the US’s move to weaponize trade, which some viewed as a sign that future restrictions on capital flows – such as taxes on foreign holdings of Treasuries and other barriers on non-US managers – could follow. From our experience in EM, economies that pursued protectionist policies often end up less productive and prosperous. Local investors, by contrast, were focused mainly on immediate challenges like tariffs and the market reaction to policy announcements.
*As of April 28, 2025
Bernard Steinberg
bernard.steinberg@rohatyngroup.com
Bernard is Head of TRG’s Public Markets business and a member of the firm’s Executive Committee. He has over 30 years of experience, including 20 years of fixed income, currency, and derivative trading experience in global emerging markets. Prior to joining TRG in March 2003, Bernard was a Director in Merrill Lynch’s Emerging Markets Group and a Senior Trader with the Royal Bank of Scotland’s Emerging Markets Group. He spent seven years managing a proprietary investment portfolio for Crédit Agricole Indosuez, most recently as a Partner in the firm’s London office, where he oversaw the Local Markets Trading Group, which was responsible for a sizeable portfolio in Latin America and Eastern Europe. Bernard earned a Bachelor of Business Administration degree from Fundação Getulio Vargas Business School in São Paulo, Brazil.
Luis Arcentales
luis.arcentales@rohatyngroup.com
Luis has over 20 years of experience in covering global macroeconomics and markets. He is responsible for formulating market strategy at TRG. Prior to joining TRG, he had a short stint as an independent macro researcher following a nearly two-decade career at Morgan Stanley in New York. In his role as Senior Economist, his primary focus was developing the macroeconomic and political outlooks for countries in Latin America, in addition to publishing on topics ranging from the business cycle to trade dynamics for the region. Luis started his career as an equity strategist at McGlinn Capital, a value-oriented asset manager in Pennsylvania. He holds an MS in Economics and a BA in Industrial Engineering from Lehigh University; he sits on the board of Lehigh’s Martindale Center for the Study of Private Enterprise and is a CFA charter holder.
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