Trumponomics and the MSCI World

In a cooperation with Business Insider Magazine “Learning from the super-rich”, BeeWyzer is contributing articles and webinars since January 2025 in order to contribute lessons from managing big wealth to a broader public. In the end, an increase in wealth and investable assets is a driver of economic growth and beneficial for everybody. We are happy to share the articles in our blog also – feel free to skip if you are an expert already and enjoy the read if they offer valuable knowledge to you!

Trumponomics and the MSCI World

By Christian Stadermann and Peter Brock, BeeWyzer GmbH 

For years now, the question has been asked time and again whether an investment in the MSCI World as an index for the global equities still makes sense. And there have long been good arguments against this index: a strong overweight of the US equity market and recently an increased concentration of the big tech stocks.

Nevertheless, we have not adopted this criticism in recent years, as there have been enough counter-arguments:

- The US offers one of the largest economies and the largest, most mature and most liquid stock market in the world, which automatically leads to a high weighting.

- The tech sector stands for future growth opportunities like no other, which also suggests a high weighting.

- The index has always delivered a good performance over a long period of time.

- The index has been provided by Morgan Stanley for four decades and is firmly established, with cheap ETFs available in good quantity and quality.

- In times of crisis, such as the bursting of the new economy bubble and the financial market crisis, the index is not defensive, but represents unchecked market risk for equity investors. But the upswing that followed was always strong also 

This positive stance on the index has served us well so far, but the fundamental change of US policy is now challeging our assessment:

- The combination of trade wars and restrictions on freedom under the guise of a fair market economy has the potential to make the land of European dreams not big again, but small. One of the few economic issues on which economists do not argue about is free trade creating welfare gains for all trading partners. And this is independent of their factor endowment and productivity. Tariffs are likely to reduce the USA's growth potential in the medium term.

- This will be accompanied by higher prices for American consumers, as many economists repeatedly emphasize. At some point, this can no longer be blamed on the previous government and may require more repressive action.

- The government's entry into cryptocurrencies will reinforce the inflationary push, even if initially in a concealed manner. Even though no purchases of new positions are the declared policy at the moment, it is not unlikely that Donald Trump will make a U-turn later on.

- As the US dollar is still the world's reserve currency number one and the US interest rate market is of global importance, the inflationary surge will also be exported in a second stage. Older people remember John Conolly, the architect of President Nixon's financial policy, with his famous statement from 1971: The dollar is our currency and your problem.

But the world is different than it was 50 years ago. Many economies have long wanted to reduce their dependence on the US dollar and are well on the way to doing so:

- Part of the rise in the price of gold can be explained by purchases of central banks diversifying out of the dollar.

- Over 10% of global oil contracts are already invoiced in renminbi.

- Other countries and their central banks are also working on or have already started using cryptocurrencies.

- The euro is available as an alternative. If it has not yet gained a larger share of the world's reserve currencies, this is still due to the financial market crisis and the lack of a common market for government bonds with sufficient depth and width. The joint defense efforts of European countries could now change this.

- There are more alternatives available, such as the MSCI World ex-USA or other world indices.

If the above assessments are correct, then the signs in the USA point to a short and heavy party followed by a strong hangover. And that makes the case against an investment in American blue chips and the US tech sector.

However, this is not an appeal to withdraw from the US market. In view of the risks described, however, overweighting it no longer seems appropriate. The share of emerging economies in the global economy have become too high, and the leading companies in forward-looking technologies can change too quickly. And the prospects for the EU following Trump's wake-up call appear too interesting for investors.

Concerns about the US domestic market ultimately led to the good performance of the DAX at the beginning of this year: Just over 50% of turnover on the German stock market each year is made by foreign investors, most of them from the US.

For the 'European Call' to work, however, some things need to be done right, such as the efficient use of the financial resources that are now being created and the broad mobilization of private capital for investment in research and development as well as infrastructure.

Investors should now, more than ever, diversify globally and focus a little more on smaller and medium-sized companies, as blue chips are the first to suffer in market turmoil due to their liquidity. And many second and third-tier companies have even more potential in terms of valuation.

In principle, however, risk reduction should not necessarily be sought by increasing cash. Volatility overlays offer good premiums in times of strong market fluctuations, which can also be collected regardless of market direction, while market-neutral strategies such as managed futures can be used to reduce risk.

All in all, the MSCI World appears to be under review. But the most important value that the current American administration is about to destroy is not an index or a currency: it is the United States' freedom promise, an 'intangible asset' of invaluable importance, that has always provided the American economy with a high net return: even after the costs of international involvement.