As valuations in the US remain elevated and concentration risk rises, the search for alternative sources of growth, value, and resilience across global markets is intensifying.
Yet what is significant about this current environment is not the strong growth in the US tech sector, but rather the lack of growth in the rest of the US economy, according to Old Mutual Investment Group’s latest quarterly media investment update this week, which highlighted that global markets are already in rotation. The question now is where global portfolios should rotate to.
“Year-to-date, we’ve seen the complete opposite trend to the last decade,” Wilson noted. “Since 2010, there have only been two short periods where the US underperformed the rest of the world—2015 to 2017 and in 2022. Yet currently, the US is underperforming, whether you look at it in dollars or local currency returns.”
“With the anchors of US exceptionalism over the past 15 years – security of capital, higher growth and interest rates, valuations and returns – indicating the likely end to years of US market and economic dominance, the key takeout here is that now is probably not the best time you want to be chasing the previous winners in this market, and to be wary of portfolio concentration to a narrow and popular narrative,” he warns.
In addition, Wilson points out that if you strip out AI-related investment, you could argue that the rest of the economy is already experiencing a recession.
“US real GDP growth in the first half of the year was just over one percent, but if you disregard information processing and software investment, growth was slightly negative,” said Wilson. “At the same time, real investment in tech grew at an excess of 20% in the first half of the year. If you broaden that definition to include data centres, power supply and software-related intellectual property, you get the same picture — a very high contribution to growth from tech and AI-related investment.”
Wilson noted that this contribution is not only high relative to recent history, but also when compared with the late 1990s, during the TMT bubble. “What’s different this time is not just the significant contribution to growth from tech, but the lack of growth elsewhere,” he said. “Back then, the rest of the economy was resilient and contributed meaningfully to growth. This is not the case today.”
This creates a challenge for the US Federal Reserve. “You now have sticky inflation, a slowing economy ex-tech, and a lot of capital being driven into tech investment,” Wilson explained. “This increases the risk of policy error, with the Fed ending up cutting rates to support the rest of the economy, while inadvertently fuelling a speculative bubble in US tech.”
Turning to the debate over a global tech bubble, Wilson says that while there are early warning signs of speculative excess in today’s AI-driven market, global investors are not yet at the peak of a full-blown tech bubble. “Drawing parallels with past technological revolutions, the surge of capital into AI resembles earlier periods of overinvestment seen during the internet boom, though fundamentals are stronger this time — with real earnings & healthier balance sheets,” he explains.
“However, rising valuations, narrowing market breadth, and growing retail leverage suggest mounting risk. With monetary policy likely to ease rather than tighten, this could further inflate rather than burst the bubble in the near term, making prudent risk management and diversification essential.”
Co-presenter and fellow Portfolio Manager at Old Mutual Investment Group, John Orford, pointed to Europe, Emerging Markets, and Africa as key areas to watch for global diversification opportunities.
“Europe is showing signs of stabilisation, with improving earnings momentum and more reasonable valuations,” said Orford. “In Emerging Markets, selective opportunities are opening up as interest rates peak and currencies stabilise. The key is diversification — investors need exposure to markets that are less dependent on the narrow leadership of US technology.”
Africa, in particular, offers improving value, supported by attractive real yields and a stronger macro backdrop. “African fixed income remains one of the few areas globally where investors can still earn inflation-beating real yields, with the potential for capital returns as interest rates are cut, ” Orford said. “South Africa, for instance, is benefiting from stronger commodity prices and improving investor sentiment. The rand should arguably be stronger given where gold and platinum prices are, and that’s feeding through to stronger local bond and equity performance.”
Looking ahead to the 2026 Budget, Orford noted that, as a result, the local fiscal picture is tracking better than expected. “If you look at where this year’s budget is relative to target, we’re doing well — both on expenditure restraint and on revenue,” he said. “Debt-to-GDP is now likely to peak below 80%, rather than in the 90s as once feared. That’s been helped by strong commodity prices and lower inflation expectations.”
He added that while reform progress remains uneven, improvements in electricity supply and rail freight are encouraging signs. “We’re moving in the right direction, albeit too slowly. But stability on the fiscal front, combined with easing domestic inflation and lower bond yields, sets a constructive backdrop heading into the 2026 Budget,” he said.
With the gold price the week reversing its recent exponential gains, Orford noted that gold remains a key portfolio diversifier amid heightened geopolitical uncertainty and shifting global capital flows. “Gold has performed strongly as investors reassess the sustainability of US tech valuations and seek assets with intrinsic value,” he said. “Despite its decline this week, it continues to act as an effective hedge against both inflation and financial market volatility — and for South African investors, that strength has also been reflected in the performance of gold-linked equities.”
The escalating competition between the US and China over technology dominance is also shaping long-term investment opportunities in Emerging Markets. “The tech race is no longer just about innovation — it’s about geopolitical power, supply chain control and data sovereignty,” he said. “This will continue to fragment global markets and create regional winners outside of the US. Europe’s renewed industrial policy push and Asia’s technology independence drive are both examples of how this realignment is creating new areas of growth.