Deglobalization, a Theme That Could Define 2026

After a volatile 2025, strategists reported expectations for more of the same this year. Trends that drove markets last year, including trade friction, international equity growth and global investors diversifying away from U.S.-based assets, are likely to continue, according to panelists at a CIO webinar hosted January 22.  

Speakers included Indrani De, head of global investment research at FTSE Russell; Rebecca Patterson, a member of the Council on Foreign Relations, the Economic Club of New York and the Trilateral Commission and a former CIO of Bridgewater; and Rachel Ziemba, founder of Ziemba Insights.  

The webinar can be viewed here.  

Trade Dynamics  

Panelists discussed the impacts of U.S. trade policies and their potential impacts on global markets and capital flows. The speakers also noted that although the U.S. Supreme Court is deciding a case on the legality of President Donald Trump’s tariff policy, investors and policy makers around the world are learning to adapt to tariff uncertainty.  

“Irrespective of what happens specifically on the tariff front from the Supreme Court, the reality is that the rest of the world is getting used to higher uncertainty from the United States because of constantly shifting trade policies,” De said. “As the rest of the world looks for more stability in their decisionmaking, it’s leading to new patterns.” 

Major trade deals that omit the U.S. have already been announced in 2026, including Canada’s deal with China, which would restore imports of Chinese electric vehicles into Canada to their 2023-24 level in exchange for lower tariffs on Canadian canola oil. 

The EU recently signed an expansive trade deal with India, eliminating EU tariffs, on 91% of Indian goods and Indian tariffs imported into the EU and on 93% of European goods imported into India. Canada Prime Minister Mark Carney has signaled a trade deal between Canada and India could be coming soon. The EU also signed a deal with South America’s Mercosur block that would remove tariffs on some 91% of EU goods sold into much of South America and encourage European investment in the region, but the deal could face further delays.  

“These changes in patterns are happening, irrespective of the specific policy changes that could or are happening in the United States, because the rest of the world has taken it as a given that there is a high level of uncertainty emanating from the United States,” De said. She added that other countries are looking for ways to “protect against that uncertainty—not the specific politics, per se, but the broader uncertainty.”  

The Canada-China trade deal, although small in terms of Canadian dollars, is symbolically important, Patterson noted.  

“I think we will continue to see those sorts of deals moving ahead, and I would watch it, not just on the trade flows, but what you tend to see historically is where trade moves, you also see foreign direct investment move,” Patterson said. “So if I’m trading more with South Korea or China or Canada, it’s more likely that my companies are going to be expanding their businesses there, and so capital will follow as well.”  

Strong International Performance  

Panelists noted the strong performance of international and emerging markets assets in 2025 and said the trend is expected to continue this year, as investors look to diversify away from the U.S.  

“It is really a sentiment-driven, capital-flow-driven story,” De said. “What we saw in 2025 is: The rest of the world, when they had so much higher equity returns, a lot of it came because their valuations expanded much more than U.S. valuations expanded, which is why the valuation premium the United States had to the rest of the world has been compressing. You can see it in direct capital flows—where are the equity flows going?” 

Last year saw strong inflows into European and emerging market equities, both of which outperformed U.S. equities. Emerging market fixed income was also the highest-performing of all credit sectors last year.  

“Overall, I think we’ll continue to have foreign investors looking more carefully at their [U.S.] Treasury positions, looking at their overall U.S. asset positions and saying maybe some more of those should be hedged,” Ziemba said.  

Panelists noted that pension funds in the Nordic countries have already begun to cut their U.S. Treasury bond holdings. Earlier this month, AkademikerPension, a pension fund for Danish academics, sold off all of its U.S. Treasury bonds as a result of Trump’s stated objective to gain control of Greenland, a Danish territory. Swedish and Danish pension investors Alecta and ABP, respectively, have also sold U.S. debt.  

Still, panelists noted that even though the U.S. is the world’s largest economy and the largest equity market—something unlikely to change in the long term—global investors’ need to diversify geographically persists. 

“Foreign direct investment, trade capital—they all move together over the longer term,” Patterson said. “We’re not going to feel it much this year, probably not even next year, but over the next five or 10 years, I think this will continue, because even with a different presidency, I think globally, you’re seeing more and more politicians and companies saying we need the United States, it’s the biggest economy in the world, the biggest consumer market in the world, but we also need diversification to protect ourselves. I think that train has left the station; it’s not coming back.”