‘We're just starting to lose complete, absolute confidence. It's being chipped away,’ says CI GAM’s Lorne Gavsie
The US market has typically dominated global portfolios for years, but the tide could soon be shifting as several asset managers start to pump the brakes.
At the Canadian Pension and Benefits Institute (CPBI)’s economic outlook for Ontario on Wednesday, several institutonal investors outlined why confidence has been steadily decreasing over the last year in US markets.
"We're slightly underweight in the US. I think that goes against consensus, or at least the common thinking that US is where it's at," said Lorne Gavsie, senior vice-president and head of macroeconomic & FX strategy at CI Global Asset Management. "Our own model suggests that we should continue to see outperformance elsewhere, including in Canada, Europe, the UK and EM. It's about how much do you want to be underweighted in the US, in this environment, where it is the biggest global economy? There's a lot of things going for it but there’s also the emotional side that says maybe I don't really want to be invested in supporting what's going on there."
Gavsie also acknowledged the political uncertainties facing US markets, noting the House remains in play for Democrats while the Senate presents a steeper climb. But he framed the deeper issue as one of eroding institutional confidence in American assets.
The tension, he explained, is that global investors have few practical alternatives. The US remains the world's largest economy, and treasuries offer unmatched liquidity for institutions managing vast sums.
"I've talked with peers who are at some of the largest pensions and sovereign wealth funds who simply say, we can't just walk away from that liquidity," he said, adding that no other market can move large amounts so quickly.
He also pointed to recent comments from the head of Temasek, Singapore's sovereign wealth fund, who recently told the Financial Times that current US exposure levels have become difficult to justify.
"We either have to see US assets outperform this year, the US dollar outperform this year, or we need to start reducing," he said. “Unless the US market outperforms, that kind of pressure will potentially lead to a continuation of this reweighting relative to the US. We're just starting to lose complete, absolute confidence. It's being chipped away.”
In the interim, Gavsie sees emerging markets - rather than in North America - as one of the more compelling opportunities, both on the equity and fixed income sides. The thesis rests on a widening growth differential and a weakening US dollar.
On the first point, he noted that many EM economies avoided the fiscal excess that marked the Western COVID response. That relative restraint now looks like an advantage.
"That puts them arguably in a better fiscal position now than they have been in years on a relative basis," he said.
Economic activity is now picking up in those markets, while US consumption in 2025 was underwhelming and questions remain about whether it will reaccelerate this year, he noted.
As for the second point, he emphasized how EM assets tend to benefit when the US dollar weakens, with that backdrop now in place. He suggests it’s “a really critical component for EM economic activity and for local financial markets.” With global investors still not meaningfully overweight EM, he thinks there is “potential for ongoing buying flows going into those markets,” he added.
Gavsie acknowledged the Canadian dollar’s weakness is tied directly to the gap that opened up between Canadian and US interest rates. That spread blew out to levels “not seen in over 25 years,” noted Gavsie, which helps explain the Canadian dollar’s persistent weakness.
Even as the US dollar softened broadly through 2025, the loonie managed only a 4 per cent rally, with most of it concentrated in December.
But now that gap is narrowing, noted Gavise, underscoring that as Canadian rates look less suppressed versus US rates, that should support the currency and make it less attractive as a funding currency for carry trades.
“I actually think there's still room for Canadian dollar appreciation and over a long-term basis, the Canadian dollar remains extremely undervalued… It also reflects just a better environment in Canada and maybe a weakening environment in the US, although I tend to agree that these interest rate moves in the US are far more politically driven, it would appear,” he noted.
Meanwhile, Chhad Aul, chief investment officer and head of multi-asset solutions at Sun Life Global Investments (SLGI) reflected on how the post-Liberation Day landscape has since defied market expectations. Despite the America First rhetoric that dominated 2024, US assets lost their shine as trade policy shifted. The dollar weakened through 2025, marking several years of negative returns, a reversal few had anticipated.
However, Canada fared better than most predicted, he said. Political transition helped restore confidence, services sectors held up, and the USMCA framework shielded the bulk of Canadian exports from the worst tariff impacts.
"The provisions and the carve-outs for products covered by USMCA, the Free Trade Agreement, normally NAFTA, did shield most of our exports from higher tariffs," he noted.
But that protection now faces an expiration date as he believes the looming renegotiation of the trade agreement represents the most significant risk on the horizon for Canadian markets. Yet, Aul sees reason for cautious optimism over a longer horizon.
"I still believe in the long-term pain scenario,” he said. “In five years from now, ten years from now, I think we, as a country, will be in a more robust position," he said.
Until then, however, Gavsie believes the more pressing concern is a potential re-acceleration that reignites inflation, noting that if growth picks up steam across the US, Canada and other regions, the virtuous cycle could turn problematic.
"The risk is you have markets doing well, economy doing well, consumption starts to pick up, and that starts to push inflation higher again," he noted.
While he doesn’t call this his base case, he flagged it as "one considerable risk" for the second half of 2026, one that could force central banks back into tightening mode and create headwinds for equities and other risk assets.
