The global investment landscape is undergoing a profound transformation. As we move through the remainder of 2025, a confluence of geopolitical fragmentation, persistent inflation and US trade protectionism are set to continue reshaping market dynamics.
These forces are challenging the long-standing dominance of US mega-cap growth stocks – such as the ‘Magnificent Seven’ – and ushering in a new era where value investing is regaining prominence.
At the heart of this shift are the US president Donald Trump’s tariff policies and broader de-globalisation efforts. These measures have fuelled inflationary pressures and elevated interest rates, prompting investors to pivot toward strategies that emphasise defensiveness, diversification and tangible upside potential.
Geopolitical fragmentation, persistent inflation and US trade protectionism are set to continue reshaping market dynamics
In this environment, traditionally undervalued sectors – such as materials, industrials and financials – are gaining renewed investor interest due to their resilience and attractive entry valuations.
Capital set to increasingly flow globally
The transition away from a decade of growth-led investing, fuelled by ultra-low interest rates and abundant liquidity, has been gradual but decisive.
The anti-trade stance toward China, particularly in the technology sector, has introduced volatility – especially in semiconductors – further encouraging a shift toward value-oriented strategies. Investors once again are seeking diversification.
This pivot is not confined to the US. Global capital is increasingly flowing toward regions like Europe, where policy responses – such as Germany’s massive infrastructure and defence spending package announced earlier this year – are creating fertile ground for value stocks.
While US firms comprise over 70% of the MSCI World Index’s market capitalisation, the redirection of trade and capital flows due to tariffs and reshoring efforts may alter this balance, offering compelling opportunities in non-US markets.
T Rowe Price: Blending the best of active and passive investment
Persistent inflation is another tailwind for value investing. In inflationary environments, current earnings take precedence over future growth projections, favouring value stocks. Financials – particularly the European banking sector – have benefited from rising interest rates, with improved net interest margins and stronger earnings outlooks. We see continuing evidence to support our view that interest rates and inflation could remain higher for longer.
A key driver of this global value resurgence is the anticipated rise in capital expenditure (capex), especially outside the US. While the post-global financial crisis era favoured tech firms with intangible-heavy business models, the current demand for tangible assets is boosting sectors like industrials, energy and materials – all of which align with value investing principles.
Importance of geographic and sector rebalancing
For asset allocators, this shift underscores the importance of rebalancing equity exposures. Over-indexing to US mega-cap tech – despite the sector’s strong outperformance in recent years – risks overlooking traditional value sectors such as financials and energy. A diversified, global approach to value investing is essential for those seeking to navigate the complexities of today’s market.
The shift toward value investing is more than a tactical adjustment – it is a strategic response to a changing world
Despite ongoing uncertainty around US trade policy, parts of the global economy remain resilient. However, risks of stagflation and recession persist, and the synchronised selloffs in US equities, bonds and the US dollar reflect waning investor confidence in American economic leadership. We believe this creates an opening for broader global market participation.
Valuation spreads across global stock markets continue to highlight attractive opportunities, particularly in financials – which is a sector underrepresented in growth benchmarks. Banks and insurers, especially in Europe, are well-positioned to benefit from structurally higher interest rates and improved investment income.
In conclusion, the shift toward value investing is more than a tactical adjustment – it is a strategic response to a changing world. As global equity markets evolve, investors are encouraged to embrace value opportunities and leverage expert strategies to navigate this new economic era.
Sebastien Mallet is portfolio manager of the T Rowe Price Global Value Equity Strategy
