Tech titans, de-dollarisation and new frontiers

Tamara Haban-Beer Stats, Director and ETF Specialist | BlackRock

This year has been an action-packed one so far, with a barrage of market moving events keeping investors on their toes. We’ve seen the fastest wipeout of US market capitalisation in history, followed by the largest one-day gain in the S&P 500 since the global financial crisis. 

While settling at a lower level than originally announced, US tariff rates are likely to reach their highest level in 100 years once bilateral trade agreements are finalised (see chart below). And thanks to the sizeable gains made by the Magnificent 7 tech stocks – Apple, Amazon, Alphabet, Microsoft, NVIDIA, Meta and Tesla – the US equity market now represents approximately 70% of the MSCI World Index, commonly used as a key benchmark of global equity markets¹. 

US effective tariff rate, 1900-2025

Source: BlackRock Investment Institute/US Census Bureau, July 2025

Against this backdrop, investors looking to allocate to global equities may find themselves at a crossroads – do they continue to look to US equities and the outsized growth of the megacap tech names, or do they need to protect against the risk that US exceptionalism will fade? 

Looking at the key themes we think will drive markets in Q4, the answer may be both.

Theme 1: Get selective in the US

We see US equities remaining a core allocation for Australian investors, underpinned by the strength of US corporates and the momentum of the AI theme. But risks remain – including the ability of the US economy to withstand the inflationary pressures of tariffs, and further declines in the US dollar as US government debt rises and economic growth slows.

We advocate an AI-led approach to US equity investing, rather than broad market exposure. Powered by mega-cap tech ‘hyperscalers’, global AI-related capital spending is expected to increase by US$180 billion over the next three years². 

With an 80% weighting to the US and 45% to information technology³, the iShares S&P Global 100 ETF (IOO) stands out as one way to gain access to the US through an AI lens – as well as offering additional diversification through other leading global companies.

For those who prefer a core index approach through the S&P 500, we think currency hedging is worth considering at the current time. While we don’t believe the US dollar is at risk of losing its status as the global reserve currency, signs of short-term ‘de-dollarisation’ are at play as investors look to increase their hedge ratios in the face of US policy uncertainty. 

A recent global BlackRock client survey indicated more than 25% of those in Asia Pacific were looking to reduce their exposure to US dollar assets⁴. Meanwhile in Australia, we have seen investors allocate more than $500 million to the iShares S&P 500 (AUD Hedged) ETF (IHVV), versus around $170 million to its unhedged counterpart the iShares S&P 500 ETF (IVV)⁵. 

Theme 2: Look for opportunities in new markets

Despite the continuing positive performance in US tech, we see value in adding some variety to global equity allocations – and with positive fundamentals and attractive valuations, emerging markets present a compelling opportunity. 

We’ve seen markets like South Korea and South Africa far eclipse their developed market peers this year, driven by structural reforms and supportive monetary policy that have provided strong support to their respective economies.

Longer term, we see emerging market economies benefiting from key mega forces like the AI transformation (through tech powerhouses Taiwan and South Korea) and demographic divergence (through India’s rapidly growing workforce).

China equities have of course also capped off an amazing bull run in the past year - but we believe the emerging markets growth story extends beyond China. For investors interested in adding emerging markets exposure to their global equity portfolio, we advocate a more segmented approach using the iShares Emerging Markets ex China ETF (EMXC) and iShares China Large Cap ETF (IZZ). 

This may allow investors to access higher weightings to markets like India and South Korea, as well as dialling their exposure to China up or down depending on market conditions.

Theme 3: Diversify your diversifiers

We believe the new market regime – dominated by uncertainty – calls for a new investment playbook. Part of that is looking outside the box when it comes to diversification, as the typical 60-40 or 70-30 portfolio consisting of bonds and equities may not be as effective going forward. 

The correlation between stocks and bonds has largely been positive since 2024, meaning the degree of portfolio protection provided by fixed income has not been as high during downturns in equities. 

This has caused investors to search out new diversifiers to use as a complement to bonds, including infrastructure – across iShares’ Australian ETF range, the iShares Core FTSE Global Infrastructure (AUD Hedged) ETF (GLIN) has been one of our top 5 most popular funds on an inflow basis for both 2024 and 2025 to date⁶. 

On a short-term basis, we like infrastructure as a defensive exposure against the extreme market swings we’ve seen so far this year, as it tends to have lower volatility than broad market equities⁷.  

Strategically, it also taps into several ‘mega forces’ we believe will transform the global economy in the longer term, including the AI buildout, geographic fragmentation and reshoring, and the transition to cleaner energy. 

As ASX ETF market capitalisation rises to a new record of $280 billion⁸, we see Australian investors increasingly using the huge variety of ETFs across asset classes, markets and thematics to nimbly adjust their portfolio exposures in today’s volatile markets. 

By leveraging opportunities related to artificial intelligence, expanding beyond developed markets, and incorporating more defensive holdings, ETFs can serve as effective tools for constructing a resilient portfolio amid the unpredictability experienced this year.