Australian private wealth and advisory firm Escala says investors are taking a more granular view of regional exposures as economic divergence widens between countries.
Against this backdrop, it says broad regional indices such as Europe and emerging markets are increasingly masking widening gaps between economic winners and losers, making them more useful as a starting point than a portfolio framework.
In a recent note, Escala chief executive Ben James said he is seeing clients shift their portfolio construction in response to growing dispersion between countries in growth, inflation, policy settings and sector composition.
“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.”
He said the difference is not about access, but rather a judgment of what risks clients want to take, what to avoid, and how it fits together in a long-term portfolio. The firm outlined a disciplined process combining country-level macro and policy analysis, identification of structural return drivers, and implementation via managers focused on risk, liquidity and portfolio fit.
Escala’s clients include high-net-worth individuals, family offices and not-for-profit organisations. With often complex financial requirements, the firm said their investment decisions typically extend beyond markets to considerations of structure, timing and long-term objectives.
Pointing to examples of recent country-level divergence, Escala chief investment officer Tracey McNaughton said political developments around Japanese Prime Minister Sanae Takaichi have supported stronger investment optimism in Japan relative to Asia more broadly.
“Corporate governance reform and changes in capital management have supported a distinct investment case that is not captured by a broad ‘Asia’ allocation,” McNaughton said.
She argued that a similar divergence is evident across emerging markets, where broad indices can create an impression of consistency that often doesn’t reflect underlying differences.
“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, with AI-related tailwinds and ongoing corporate reform momentum helping to offset concerns around US tariffs.
After an initial decline following the outbreak of the Iran war given concerns over its vulnerability to disruption in the Strait of Hormuz as a major oil and LNG importer, the South Korean Kospi index has since rebounded in 2026 and continued to support broader emerging markets returns.
Year-to-date to 30 April, McNaughton noted that the MSCI World Index returned 5.2 per cent, compared with 13.9 per cent for the MSCI Emerging Markets Index over the same period. However, she said the figures mask significant dispersion between the strongest and weakest country-level markets within those indices.
“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.”
India is an example of a domestically driven economy, with ClearBridge’s Jeffrey Schulze highlighting the country at an Australian meeting last week as an emerging market where he currently sees less promise.
McNaughton added that the same pattern can be seen in geopolitical tail risk.
“Looking at exposure at a country level helps clarify where risk is concentrated, which markets are absorbing those risks, and which are less exposed.”
James concluded that a more granular understanding of geographic exposure can improve portfolio construction by enhancing diversification and more accurately managing risk and opportunity.
He said this is especially relevant for clients making long-term, multi-generational decisions or managing capital against defined objectives, and will grow in importance as the global order shifts from a rules-based system toward one shaped by state-backed industrial policy.
“In a more complex environment, clarity becomes more important,” he said. “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.”
