Investors have become used to big tech titans dominating market returns but is a market rotation creating more diverse opportunities? asks Kate Marshall, lead investment analyst, Hargreaves Lansdown.
In recent years, global stock markets have become increasingly concentrated – at a country, sector and individual stock level. The ‘Magnificent Seven’ have dominated returns, raising concerns around diversification. But is concentration risk now falling?
The rhetoric around trade tariffs, defence spending, and other geopolitical risks has played a key part in how markets have performed in the first half of the year. While global markets have been volatile, gains have been spread more widely and not isolated to a handful of names, such as Nvidia, Apple, and Microsoft, that had previously led the market. These moves haven’t been enough to knock the tech giants off their top spot in global indices yet, but it’s a stark reminder of the need for diversification in client portfolios.
At the end of June 2025, the US represented two-thirds of the MSCI AC World Index. This compares with almost 70% at the start of this year. It might not sound like a huge difference, but it’s a step change in the dominance of the US.
It’s partly because US stocks fell almost 3% in the first half of this year, while other markets have gained. Most noticeably, the European stock market has grown over 14% so far in the 2025. Areas including defence, banks and other industrials have performed well. The potential for more investment from Europe in areas like defence, following Trump’s calls for greater spending in this sector, and infrastructure has been viewed positively.
The UK’s also up an impressive 9% this year. With sectors like aerospace & defence (including BAE Systems) performing strongly here too, and banks have boosted returns as they are benefiting from higher interest rates. Rachel Reeves has also announced reforms which aim to increase investment in the stock market and drive growth across the UK.
In emerging markets, China has had a strong first half. The country’s leading tech players, including Alibaba and Tencent, surged on strong AI momentum earlier in the year, while looser monetary policy from China’s government has given a boost to its stock market.
None of this is to say that concentration risk has disappeared. The US, and technology companies in particular, remain dominant. The Magnificent Seven still carries substantial influence in global markets. But recent data suggests there’s been some rotation in markets, towards some more economically sensitive sectors, value-oriented regions, and companies outside the usual tech titans.
For active investors, this could mark the start of a more favourable environment. If markets broaden in terms of countries, sectors, and individual companies, this could improve diversification and create more opportunities outside of the index heavyweights we’ve grown accustomed to in recent years.
There are no guarantees this will be a full regime change. Many of the investment experts we meet don’t believe ‘US exceptionalism’ is over – it remains a highly innovative market. But the breadth of potential returns is expanding, and the evidence suggests concentration risk may have peaked.
Investors should maintain diversified portfolios, given different countries, themes and styles of investing will come in and out of favour over time.
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