World and Emerging Markets indices are masking widening gaps between country-level winners and losers
Australian private wealth investment and advisory firm Escala says investors need to place greater emphasis on understanding the country-level drivers shaping global markets, as differences between economies play a larger role in outcomes.
The firm works with clients who have complex financial needs, and where their investment decisions extend beyond markets to structure, timing and long-term objectives.
Escala says that while broad regional exposures such as ‘Europe’ and ’emerging markets’ remain a useful foundation, they are increasingly being complemented by a more granular view of the underlying exposures within those regions.
Ben James, chief executive officer at Escala, said the shift reflects how portfolios are being constructed rather than a change in overall direction.
“For most clients, this is not about moving away from global exposures,” James said. “It is about understanding them more clearly and understanding where capital is actually deployed, what is driving returns, and how the different countries interact.
“The difference is not access. It is a judgement of what risks we want to take, what to avoid, and how it fits together in a portfolio.”
He said that as markets become less synchronised, investors are spending more time on how portfolios are structured and how risks are distributed across them. “Advice is considered over years, not quarters.”
Escala said the growing dispersion between countries in growth, inflation, policy settings and sector composition is making it more important to look through regional labels, rather than relying on them in isolation.
Tracey McNaughton, chief investment officer at Escala, said recent market behaviour has reinforced the value of that approach.
“Japan is a good example,” McNaughton said. “Corporate governance reform and changes in capital management have supported a distinct investment case that is not captured by a broad ‘Asia’ allocation.”
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She said a similar divergence is evident across emerging markets.
“Broad market indices can give the impression of consistency where that does not exist.
“The differences between countries such as India and China in terms of growth, policy direction and capital flows are meaningful. Even within Asia, markets like South Korea are being influenced by their own mix of reform and sector exposure.”
South Korea was among the strongest-performing equity markets globally last year, as semiconductor demand and corporate reform momentum helped offset concerns around US tariffs.
This divergence pattern has continued into this year.
“The MSCI World Index returned 5.2% year-to-date to 30 April 2026, while the MSCI Emerging Markets Index returned 13.9% over the same period. In US dollar terms, these figures mask significant dispersion between the strongest and weakest country markets inside those indices,” McNaughton added.
“In some cases, technology-exposed markets have advanced sharply, while others tied more closely to energy, financials or domestic demand have lagged, despite sitting within the same regional grouping.
“The same pattern can be seen in geopolitical tail risks. Looking at exposure at a country level helps clarify where risk is concentrated, which markets are absorbing those risks, and which are less exposed.”
Escala said a more granular understanding of geographic exposure can improve portfolio construction by helping investors better assess diversification and identify where risks and opportunities are concentrated.
“Diversification is not only about how many regions you hold,” James said. “It is about how those exposures behave together.”
He said this is particularly relevant for clients making long-term decisions across generations or managing capital against defined objectives.
“The aim is to build portfolios that hold up over time, and make decisions that clients remain comfortable with.”
Escala emphasised that this approach is underpinned by a disciplined investment process, including country-level macro and policy analysis, identifying structural drivers of return, and implementing exposures through carefully selected managers with a focus on risk, liquidity and portfolio fit.
McNaughton said the value ultimately comes down to execution. “Identifying a market that looks attractive remains extremely important. As important, is to understand its role in the portfolio and how it contributes to overall outcomes.”
Escala expects this more considered approach to global investing to remain vital as the world shifts from a rules-based order to one dictated more by state-backed industrial policy.
“In a more complex environment, clarity becomes more important,” said James.
“Broad exposures remain part of the solution, but understanding what sits beneath them, and where adjustments need to be made, is where the real value is added.”
