Rhythmic Reasoning_Full Report_Final_EN - Flipbook - Page 55
THE DRUMMER'S EAR | RHYTHMIC REASONING
and overall well being. It extends to personal care and beauty
with clean beauty products and anti-aging solutions, as well as
to wearable and other devices that enable personalized health
monitoring and solutions.
Another trend impacting U.S.-based companies is the
restructuring of global supply chains prompted by geopolitical
tensions and the push for greater resilience. This nearshoring trend
may benefit domestic manufacturing and industrial companies.
Firms with domestic expertise in areas such as infrastructure
and manufacturing may benefit from tariffs that reduce import
competition. Outside of the direct manufacturing beneficiaries,
transportation and logistics firms could also see higher usage of
their services and networks, and demand for commercial and
industrial properties could also see a tailwind.
•
•
The MSCI ACWI is expected to deliver earnings growth of 11.6%
in calendar year 2026, according to consensus estimates, a slight
improvement since the start of the year.
Fig 5: Unlike North America, consensus earnings
expectations for both CY2025 and CY2026 for
international equities point to near double digit growth
10.9%
11.3%
10.0%
8.8%
3.8%
-2.3%
Japan
China
CY26E
Source: Bloomberg Finance L.P., Scotia Wealth Management
Looking at some of the factors driving near term growth
expectations for international equities, we see European equities
benefitting from a combination of rising infrastructure and defense
spending, which are a core part of our investment themes. In
conjunction with a potential recovery in global demand, earnings
momentum may be sustained. According to the European Central
Bank, Europe requires €1.2 trillion in annual public and private
spending by 2031 to meet its needs for green, digital and defense
spending. The European Recovery and Resilience Facility (RRF) provides member states with €723 billion in grants and loans to
support the transformation. At the country level Germany, the
largest economy in Europe and the laggard when it comes to
growth earlier in the year announced a €500 billion infrastructure
spending program over the next 12 years. These initiatives should
boost economic growth and earnings for the region.
11.6%
9.7%
7.6%
CY25E
11.1%
10.8%
CY25E
Despite recent outperformance, the valuation gap with U.S.
equities has widened.
Earnings expectations for 2026 remain resilient, though
geopolitical and macroeconomic risks could lead to shortterm volatility.
Medium-term outlook is constructive, supported by longterm structural themes, though near-term uncertainty keeps
us neutral.
10.6%
Fig 6: CY 2026 Earnings growth for international
equities is being driven by Europe and China
Europe
KEY CONCLUSIONS – INTERNATIONAL
•
developed markets, following initial downgrades tied to Liberation
Day announcements.
However, risks remain. The STOXX 600 generates approximately
60% of its revenues from exports, making it sensitive to currency
movements. A weakening U.S. dollar—driven by Fed easing—may
pose a near-term headwind to corporate profitability. Political
developments also warrant close attention, particularly following
France's surprise decision to call a snap election. The index
currently trades in line with its long-term average, and these
uncertainties could limit further multiple expansion.
CY26E
Dec-24
Jun-25
Sep-25
Source: Bloomberg Finance L.P., Scotia Wealth Management
Regionally, earnings forecasts for European equities have risen
meaningfully in 2025, with calendar year 2026 expectations
increasing from 8.9% at the start of the year to 10.8%—a level
above the long-term average. For Japan, consensus forecasts
now call for 3.8% earnings growth in CY26, down from 10.8%
at the beginning of the year. Consensus forecasts for 2026
earnings growth for China have recovered to 11.1%, in line with
Japan remains well-positioned to benefit from structural
themes such as artificial intelligence, semiconductors, industrial
robotics, and quantum computing over the medium term. Its
aging demographics are accelerating innovation, particularly in
automation, as labour shortages intensify. Japan ranks third
globally in robot density and is responsible for designing or
manufacturing nearly half of the world’s installed robots, while
also being the second-largest end market after China. In support
of these industries, the Japanese government announced a $65
billion investment plan through 2030 to strengthen the country’s
semiconductor and AI sectors via subsidies and incentives.
Reinforcing this trend, TSMC—the world’s largest semiconductor
manufacturer—opened its first plant in Japan in 2024 and has
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