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Yulu Ao

With US equities regaining momentum amid easing tensions in the Middle East, questions are being raised as to whether global capital is rotating back into the world’s largest market.
Investment advisers and fund managers said global investors were reassessing their asset allocations, though there was little evidence of a broad capital rotation away from Asia.
While market performance suggested some reallocation, flow data remained inconclusive and did not point to a decisive shift away from Asia, according to Aaron Costello, head of Asia investment strategy at Cambridge Associates. The Boston-based investment firm had US$667 billion under advisement or management at the end of December.
“Non-US equities broadly outperformed last year, particularly into early 2026, but that reversed in March as geopolitical tensions in the Middle East escalated,” he said in a recent interview with the South China Morning Post. “So US equities began to outperform.”
On May 6, US stocks hit an all-time high, driven by an artificial-intelligence-fuelled rally, strong corporate earnings and optimism regarding a potential ceasefire in the US-Israel war on Iran. The S&P 500 closed above 7,300 for the first time.
This followed a strong rally in April, with US stocks recovering from volatility triggered by escalating concerns over the Iran conflict and rising oil prices. The S&P 500 index rose about 10.4 per cent during the month, the most since November 2020, while the Nasdaq Composite Index surged 15.3 per cent, marking its biggest monthly advance since April 2020.
“The March outperformance [of the US market] compared with other markets was driven by its energy resilience, while April was on the back of tech,” Costello said, adding that the sustainability of the rally would ultimately depend on whether earnings continued to meet elevated expectations.
Despite the renewed strength in US equities, investors did not appear to be making decisive shifts in their regional allocations, according to Costello. Instead, the recent move was a “natural rotation” and better characterised as a tactical “adjustment”, he added.
He said that from the beginning of last year up until recently, investors were rotating away from US assets amid concerns over US dollar concentration, and that the Iran war was prompting them to recalibrate their allocations.

“But fundamentally, I don’t think that trend has totally shifted,” Costello said. “I still think most investors are trying to diversify and, on balance, leaning slightly away from the US.”
That view was echoed by Eastspring Investments, which said in its latest quarterly outlook that it remained “cautiously constructive” on global equities, while maintaining selective exposure to emerging markets and Asia.
“China is a relative winner given its energy and commodity reserves,” the firm said, adding that growth in mainland China, South Korea and Taiwan appeared more insulated in the current environment.
China’s relative positioning remained mixed, according to Costello. “The notion that China is uninvestable no longer exists,” he said. “A lot of investors are looking closely at it, and it is no longer off the table, but that doesn’t mean they are meaningfully reallocating.”
While the country was seen as relatively resilient to energy shocks – supported by its large reserves and transition towards alternative energy – this had yet to translate into a meaningful pickup in foreign inflows, Costello added.
“Actually, [China] is better positioned than some other Asia peers because, through its clean-energy transition, it is much less reliant on oil than in the past,” Costello said.
Investors were still looking for clearer catalysts, including a potential meeting between US President Donald Trump and his Chinese counterpart Xi Jinping this month and a stronger earnings recovery, to “take Chinese equities to the next level”, he added.
Jean-Marie Mercadal, CEO of Syncicap Asset Management, said on Wednesday that he remained bullish on Chinese equities, citing attractive valuations compared with US stocks and continued underweight positioning among global investors.
He said international capital was likely to return to the China market if the rally continued.
Mercadal also said that Chinese households had accumulated substantial savings over the past few years, and with domestic interest rates remaining low, retail investors could become an important driver for Chinese stocks in the second half of the year.


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US equities rally amid easing Middle East tensions, but global investors remain cautious, focusing on diversification and China’s prospects


US equities rally amid easing Middle East tensions, but global investors remain cautious, focusing on diversification and China’s prospects.


As US stocks hit record highs, will investors keep buying or stay diversified?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}US equities rally amid easing Middle East tensions, but global investors remain cautious, focusing on diversification and China’s prospects

US equities rally amid easing Middle East tensions, but global investors remain cautious, focusing on diversification and China’s prospects