Investors chase non-us equities and defence plays as canada talks big on middle-power clout but moves slowly
Investors are quietly repositioning for a world where “middle powers” – including Canada, much of Europe and parts of Asia and Latin America – matter more for returns than they did in the old US-centred order.
According to Reuters, money is moving toward non‑US equity markets, defence and energy stocks, and currencies such as the euro and the Canadian dollar as Washington leans into tariffs and unilateral moves and China asserts itself as the other major pole.
Principal Global Investors’ Seema Shah said US President Donald Trump “has separated the US from the rest of the world.”
She added that this shift “has encouraged a strengthening of the rest of the global macro picture and investors are responding to that,” stressing that “this is not about sell the US, but about remembering that there are other opportunities outside the US.”
The earnings and index data back that up.
According to Reuters, over 73 percent of the 52 STOXX 600 firms that had reported fourth‑quarter earnings beat expectations, compared with a typical 54 percent.
London’s FTSE 100 has broken through 10,000 for the first time and is up 5 percent this year, versus 1.4 percent for the S&P 500 over the same period.
Madison Faller, global investment strategist at JPMorgan Private Bank, expects major equity markets and emerging markets to post double‑digit earnings growth in 2026 as the shift away from US exceptionalism takes hold.
For sector calls, defence and energy stand out.
Defence stocks are up about 200 percent since February 2022, and Britain is considering joining a second possible multi‑bn‑euro EU defence fund.
Ross Hutchison at Zurich Insurance Group told Reuters energy production is gaining traction because of focus on critical resources and artificial intelligence, noting that European energy stocks are near their highest levels since 2008 and that “a lot of this build out” will happen in individual countries “from a resilience perspective.”
Policymakers and asset managers in Europe are trying to turn this into a structural shift.
BNP Paribas’ European Strategic Autonomy fund, launched in May and now worth 600m euros, invests in defence, industrial resilience, resource independence and technology, fuelled by large European investment plans.
EU industry chief Stephane Sejourne, in a “Made in Europe” proposal co‑signed by the CEOs of ArcelorMittal, Novo Nordisk, Continental and others, called for minimum European content in locally manufactured goods, though Reuters reported that the idea has split EU countries.
Allianz Global Investors’ Christian Schulz said Europe may also push for more sovereignty in digital services, security and health, and the European Central Bank is preparing a plan to boost the euro’s international role.
None of this replaces the US overnight.
Reuters said US trade will be hard to substitute and that deals such as the EU’s agreements with India and Mercosur and an initial Canada–China deal will take time to affect real flows.
But crises such as COVID‑19, Russia’s war in Ukraine and Trump’s tariffs have already exposed supply‑chain and dependency risks, which is feeding directly into policy, fiscal stimulus discussions and potential joint EU bond issuance.
Canada sits squarely in this middle‑power camp.
At Davos, Prime Minister Mark Carney told delegates that “middle powers must act together, because if we’re not at the table, we’re on the menu,” according to CNBC.
He argued that great powers can “go it alone,” but middle powers lack the market size, military capacity and leverage to dictate terms.
The Wall Street Journal said Carney has become one of the most vocal champions of middle‑power coordination, grouping Canada with most of Europe, Japan, South Korea, Australia, India, Brazil, Turkey and others.
Under his leadership, Canada has steered away from the US in trade policy with China, accelerated approvals of delayed oil, gas and mining projects to build more economic autonomy, and expanded export terminals to reduce reliance on US buyers.
At the same time, Canada’s follow‑through is uneven in regions that could diversify its trade base.
The Globe and Mail reported that Canada and South Africa look like natural middle‑power allies – both are resource‑rich and want to diversify away from US tariffs – but their trade relationship remains largely unfulfilled.
South African politicians have embraced Carney’s Davos line that “middle powers must act together, because if we’re not at the table, we’re on the menu,” and see Canada as a “key potential trading partner” in the Americas, especially in agriculture.
Ottawa’s Africa Strategy pledged an “ambitious economic agenda,” and South Africa has become more appealing with stronger growth, the end of electricity shortages, a firmer currency and a pitch as a gateway to a wider African market through a continental trade agreement, according to the Globe and Mail.
Yet after a year of meetings, only modest steps have emerged: talks on a Foreign Investment Promotion and Protection Agreement that analysts expect will take years; a South African “trade mission” that was effectively a farm delegation to a Saskatchewan machinery show; and a delayed FinDev Canada office in Cape Town that will cover the whole continent rather than focus on South Africa.
Trade numbers underline how narrow this is today.
According to the Globe and Mail, Canada exported $583m in goods to South Africa in 2024, about the same as in 2006, less than 2008 and only 0.1 percent of Canada’s global exports.
A Senate committee found that Africa made up barely 1 percent of Canada’s merchandise trade in 2024 and that Canada’s trade with Africa sits “well below” other G7 countries.
For markets, the big picture is clear enough even if politics stay messy.
Reuters reported that investors see opportunities in non‑US equities, energy names and currencies such as Canada’s dollar, Japan’s yen and the euro, especially if governments deliver on deregulation, de‑bureaucratisation and pro‑growth fiscal policies, as Macquarie Group’s Thierry Wizman argued.
At the same time, as CNBC pointed out, the system remains effectively bipolar, dominated by the US and China, and both superpowers may try to limit “middle power activism.”
That means middle‑power politics are now a live driver of earnings, sectors and FX, but they play out against a backdrop of ongoing US and Chinese heft – something Canadian advisors and investors will have to price into asset allocation rather than treat as background noise.
