In the new multipolar world order, globalization is a thing of the past. Yet Charu Chanana, chief investment strategist at Saxo, still advises investors to allocate capital across continents. She recently flew in from Singapore for a European roadshow with investors.
After the announcement of US trade tariffs in early April 2025, global economic policy changed dramatically in a short period of time. Yet equity markets reacted with remarkable calm, aside from the dip around Liberation Day. In a conversation with Investment Officer, Chanana reflects on these far-reaching developments and her expectations for the year ahead.
In 2025, after Liberation Day, it largely seemed like business as usual for equity investors. How do you explain that?
Charu Chanana: “When does the market react to news? When expectations about corporate earnings change. Reciprocal trade tariffs of 15 to 20 percent do hurt companies. But what we saw in 2025 was that many of those tariffs were postponed, and that customers of those companies rushed to make additional purchases. That front-loading actually resulted in earnings coming in better than expected and helped stabilize economic growth. In that situation, there is no reason for markets to react negatively.”
What does that imply for 2026 and the years ahead?
“I think the impact of tariffs will start to show up in equity markets, because we now know that tariffs will have a lasting effect. Even though some deals reduced certain tariffs, the average effective tariff is still fairly high, around 15 percent, compared with 2 to 3 percent before all the sudden shocks. That will negatively affect volumes and corporate earnings once the front-loading effect has faded.”
“But there is also a second major driver of markets, and that is the earnings of AI companies. Many investors are asking themselves: ‘Will the AI bubble burst?’ Honestly, we will only know after the bubble has burst.”
There has clearly been more nervousness around AI than before, judging by recent trading days.
“Until recently, investors reasoned as follows: let’s see who can spend the most on AI. And the deepest pockets were with the Magnificent 7 companies. Almost everyone piled into that trade, because the sole criterion was: if you can invest more in AI, you will also get more out of it. That was the assumption.”
“But what we are seeing now is that investors are starting to question those AI investments. They are increasingly asking questions about return on investment and monetization. Are you deploying capital in a way that provides visibility on conversion into cash flows? Is AI being implemented in a way that has a visible impact on revenues? And is it done in such a way that profit margins expand rather than shrink?”
“If that engine starts to sputter, growth will slow and equity markets will come under pressure, especially given the high concentration of these stocks in US indices. In my view, that is without a doubt the biggest risk we need to watch closely this year.”
You once said in an interview: “In the long run, discipline outperforms forecasting.”
“Ha, did I say that? I don’t remember. But I do strongly believe in it, yes. If you invest a fixed amount every month — what is known as dollar cost averaging — you are better off than constantly trying to predict market tops and bottoms in order to beat the market with perfect timing.”
“Getting out of the market is easy, but what is much harder is getting back in at the right moment. Identifying the bottom is incredibly difficult. Take the rapid rebound after Liberation Day. Those rebound days are precisely the ones that contribute most to your portfolio. If you had used dollar cost averaging, you would automatically have bought when markets plunged and then benefited enormously from the rapid recovery. Discipline therefore helps you avoid unnecessary stress.”
Does that discipline also apply to selling, for example stop-loss orders at a price decline of, say, 20 percent to limit losses?
“I would not automate selling a stock, but let it depend on your conviction about that stock. Is the 20 percent loss the result of deteriorating fundamentals, or of external factors? In the latter case, I would not sell. In fact, I might even add to the position.”
Limits of reshoring
You advise investors to diversify globally. But in the new, multipolar world order, is there not an argument for local concentration, with Europeans investing in Europe and Asians in Asia?
“I agree with the argument that we are living in a geopolitically fragmenting world. But whether we will truly see absolute independence across regions, I do not see that happening at the moment. I do not foresee an extremely multipolar environment. If you look at supply chains, we know that reshoring is taking place. No one wants a factory on the other side of the world anymore. But there are clear limits to renationalization.”
“No matter how much people keep arguing that the US will produce everything again within its own borders, that is highly unrealistic”
“No matter how much people keep arguing that the US will produce everything again within its own borders, that is highly unrealistic. First, there is not enough labor. Second, the right skills are lacking. And moreover, the impact on inflation would be a major problem. They cannot pay their workforce the same wages to produce something as, for example, labor in China.”
“There will therefore continue to be interdependencies. Diversification in the new era thus means adding different drivers of returns from different parts of the world to your investment portfolio. Or put differently: geographic diversification is no longer just about risk spreading as it was in the past, but is a driver of returns.”
Can you give examples?
“The main argument for investing in Europe right now is that it is working toward strategic autonomy and investing massive amounts in defense, data centers, and energy security. That means there is visibility on capital expenditure that will translate into a multiyear earnings cycle in the years ahead. That is a new potential source of returns that investors can add to their portfolios.”
“When you look at Asia, you see that it forms the backbone of the technological infrastructure as a whole. You see how Korea has outperformed the US, and how Taiwan has surpassed the US. And China is truly neck and neck with the US when it comes to AI developments. AI will become the big story driving the Chinese economy from here, even though the real estate sector and consumers are currently weak. The productivity gains from AI are precisely what China is relying on to support its economic growth.”
“In short, these are all structural, not tactical, reasons to diversify.”
You work out of Singapore. How does Asia view Europe?
“The recent trade deal between the EU and India is very telling. It is hugely important. This is not about one specific region looking at another, but about every region — given the pressure it experiences from the US — wanting to diversify its partners. Whether trade partners or strategic partners. Larger economies want other large economies as allies. Because you never know when the US might pull the plug.”
Trump’s whims
How should investors deal with the chaotic communication of US president Trump?
“It has become clear by now that his posts on Truth Social function as bargaining chips to apply pressure. Not every announcement is actually implemented. For traders, it is a different matter because reflexive market reactions can occur, but long-term investors can largely ignore those posts. Only when you see that a Trump proposal also receives support from the rest of the administration and that an actual policy change is implemented from the White House does it become something to take more seriously.”
“Take the recent choice for the next Fed chair, for example (Kevin Warsh will succeed Jerome Powell, ed.). You could ignore the many prior speculations. But now that the choice is known and there is an idea of how the future policy path may change, you as an investor do need to assess what the impact could be on your investments.”
One striking difference in recent months: while gold has been hitting record highs, bitcoin—called “digital gold” by its fans—has struggled after the boom years of 2023 and 2024.
“I cannot say too much about bitcoin and would not even say that I have a strong opinion on it. Investors have realized by now that they do not truly diversify by adding bitcoin to their portfolios. It largely behaves like other risk assets. When a shock occurs, it falls just as hard as equity markets.”
“Gold, by contrast, has shown itself to be far less correlated with equity markets. It therefore truly adds the diversification that investors thought bitcoin would provide. We remain positive on gold, and it also has several additional catalysts.”
“There is, of course, the strong demand from central banks, and what stands out is that they are less concerned about the price. The National Bank of Poland, for example, indicated that it plans to purchase a certain amount of gold regardless of the price. They keep buying even when the gold price is high. That underscores how important this asset has become.”
“Added to that is the uncertainty surrounding US fiscal policy. We know the scale of the debt and deficit problems the US is facing. As a result, investors have been looking for assets that are not dependent on a country’s creditworthiness or credit rating. In that sense, gold has become particularly important.”