In this month's market commentary, Mike Bell, discusses why investors looking to diversify away from the US after its phenomenal 15-year run may need to look beyond Europe – and why emerging markets, both selectively in equities and in debt, may offer a more compelling path to true diversification.
Investors are understandably looking to diversify away from the US after the phenomenal run it's had over the last 15 years, but many investors are looking to turn to Europe. I think, however, that Europe is structurally challenged for two key reasons. First of all is the rising competition from China, particularly within cars. If you look across Germany, France, Italy, and Spain, there are currently 20 factories which are operating at below 60% capacity. That suggests to me that there's risks of further job cuts coming in Europe because they struggle to compete with China. The other key structural challenge facing Europe is demographics. The working age population in Germany, Italy, and Spain is set to shrink quite meaningfully over the coming years. If you're a European bank in one of those countries, then the simple question I have is, who are you going to lend to? So, when looking to diversify away from the US, I think it makes sense to broaden one's horizons and look perhaps to the emerging markets. If China's rise is part of the problem for Europe, then investing in China allows investors to take advantage of those companies which are winning and outcompeting Europe on the global stage. That said, even within China, it's important to be selective. They, too, have their demographic challenges, with working age populations that are likewise set to shrink strongly. A passive exposure to China might give one more exposure than makes sense to contracting working age populations. Whereas an active exposure allows you to focus on the stocks which can win on the global stage. Looking more broadly within emerging markets, particularly for investors who are looking to diversify away from the US because of its tech exposure, it's important to understand that there is a substantial tech exposure within the broad MSCI EM Index. When you look at the performance of, for example, the South Korean KOSPI Index over the last year, having gone up extremely strongly and then performed very badly in July, I would want to be looking within emerging market strategies for strategies that have been able to be selective and active. Anyone that had been able to outperform in both July and over the last year must be doing something right. I also think it makes sense for investors to consider investing in the emerging markets outside of equities. If, for example, you go back to 2000 and look at the period when the dot-com bubble burst, emerging market debt performed much better than equities. Both US equities, but also global equities. So for investors looking to diversify away from US risk, I think it makes sense to broaden one's horizons beyond Europe, look to the emerging markets, both within China, but selectively, within the broader emerging market equity indices, but again, being very active, and also extending one's horizons into emerging market debt that has historically been able to outperform in periods where equities and particularly tech stocks have struggled. To discuss this in more depth, please reach out to your RBC BlueBay sales contact. I look forward to discussing it with you more in the near future.
Subscribe now to receive the latest investment and economic insights from our experts, sent straight to your inbox.
This document is a marketing communication and it may be produced and issued by the following entities: in the European Economic Area (EEA), by BlueBay Funds Management Company S.A. (BBFM S.A.), which is regulated by the Commission de Surveillance du Secteur Financier (CSSF). In Germany, Italy, Spain and Netherlands the BBFM S.A is operating under a branch passport pursuant to the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU). In the United Kingdom (UK) by RBC Global Asset Management (UK) Limited (RBC GAM UK), which is authorised and regulated by the UK Financial Conduct Authority (FCA), registered with the US Securities and Exchange Commission (SEC) and a member of the National Futures Association (NFA) as authorised by the US Commodity Futures Trading Commission (CFTC). In Switzerland, by BlueBay Asset Management AG where the Representative and Paying Agent is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. The place of performance is at the registered office of the Representative. The courts at the registered office of the Swiss representative or at the registered office or place of residence of the investor shall have jurisdiction pertaining to claims in connection with the offering and/or advertising of shares in Switzerland. The Prospectus, the Key Investor Information Documents (KIIDs), the Packaged Retail and Insurance-based Investment Products - Key Information Documents (PRIIPs KID), where applicable, the Articles of Incorporation and any other document required, such as the Annual and Semi-Annual Reports, may be obtained free of charge from the Representative in Switzerland. In Japan, by BlueBay Asset Management International Limited which is registered with the Kanto Local Finance Bureau of Ministry of Finance, Japan. In Asia, by RBC Global Asset Management (Asia) Limited, which is registered with the Securities and Futures Commission (SFC) in Hong Kong. In Australia, RBC GAM UK is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of financial services as it is regulated by the FCA under the laws of the UK which differ from Australian laws. In Canada, by RBC Global Asset Management Inc. (including PH&N Institutional) which is regulated by each provincial and territorial securities commission with which it is registered. RBC GAM UK is not registered under securities laws and is relying on the international dealer exemption under applicable provincial securities legislation, which permits RBC GAM UK to carry out certain specified dealer activities for those Canadian residents that qualify as "a Canadian permitted client”, as such term is defined under applicable securities legislation. In the United States, by RBC Global Asset Management (U.S.) Inc. ("RBC GAM-US"), an SEC registered investment adviser. The entities noted above are collectively referred to as “RBC BlueBay” within this document. The registrations and memberships noted should not be interpreted as an endorsement or approval of RBC BlueBay by the respective licensing or registering authorities. Not all products, services or investments described herein are available in all jurisdictions and some are available on a limited basis only, due to local regulatory and legal requirements.
This document is intended only for “Professional Clients” and “Eligible Counterparties” (as defined by the Markets in Financial Instruments Directive (“MiFID”) or the FCA); or in Switzerland for “Qualified Investors”, as defined in Article 10 of the Swiss Collective Investment Schemes Act and its implementing ordinance, or in the US by “Accredited Investors” (as defined in the Securities Act of 1933) or “Qualified Purchasers” (as defined in the Investment Company Act of 1940) as applicable and should not be relied upon by any other category of customer.
Unless otherwise stated, all data has been sourced by RBC BlueBay. To the best of RBC BlueBay’s knowledge and belief this document is true and accurate at the date hereof. RBC BlueBay makes no express or implied warranties or representations with respect to the information contained in this document and hereby expressly disclaim all warranties of accuracy, completeness or fitness for a particular purpose. Opinions and estimates constitute our judgment and are subject to change without notice. RBC BlueBay does not provide investment or other advice and nothing in this document constitutes any advice, nor should be interpreted as such. This document does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product in any jurisdiction and is for information purposes only.
No part of this document may be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose in any manner without the prior written permission of RBC BlueBay. Copyright 2026 © RBC BlueBay. RBC Global Asset Management (RBC GAM) is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management (U.S.) Inc. (RBC GAM-US), RBC Global Asset Management Inc., RBC Global Asset Management (UK) Limited and RBC Global Asset Management (Asia) Limited, which are separate, but affiliated corporate entities. ® / Registered trademark(s) of Royal Bank of Canada and BlueBay Asset Management (Services) Ltd. Used under licence. BlueBay Funds Management Company S.A., registered office 4, Boulevard Royal L-2449 Luxembourg, company registered in Luxembourg number B88445. RBC Global Asset Management (UK) Limited, registered office 100 Bishopsgate, London EC2N 4AA, registered in England and Wales number 03647343. All rights reserved.
Subscribe now to receive the latest investment and economic insights from our experts, sent straight to your inbox.
Please choose from the following
We are unable to market if your country is not listed.
You may only access the public pages of our website.
