Tariffs Turbulence: Why Global Exposure Matters
- Tiago Q T
- Apr 23
- 8 min read
TLDR
The recent tariff headlines are a reminder of how fast global markets can react - and why geographical diversification matters.
U.S. equities have crushed it since the 90s, but that outperformance isn’t guaranteed going forward.
Asian ETFs have lagged, even under dollar-cost averaging - but the region’s growing economic weight and lower valuations could replace that outlook.
Diversification isn’t about guessing winners; it’s about avoiding concentrated risks, especially as your portfolio matures.
An Interesting Month
Since the now-infamous 'Reciprocal Tariffs' billboard was unveiled at the White House on April 2nd, trillions of dollars in asset value vanished from global equity markets. Symbolic of the ensuing volatility, Hong Kong's Hang Seng Index (HSI) suffered its worst single-day decline since 1997, losing 13% of its value on April 7th. Sentiment there turned so sharply that traders judged things to be worse than on any single day during the pandemic or even the global financial crisis!
But instead of rehashing discussions on tariffs or recent market volatility - already exhaustively analyzed by mainstream news, financial pundits, and alike - I want to focus on a related but longer-term theme that has regained traction: geographical diversification. To keep it grounded and relatable for retail investors like myself, I’ll zero in on passive investing in equities, with a special emphasis on Asia - after all, that’s the whole idea behind this blog.
Bogleheads vs What-About-Japan?
Long-term investing advocates often remind us that equity markets bounce back, driven by human ingenuity and economic resilience. Dollar-cost averaging (DCA), where you consistently invest a fixed amount each month, is frequently cited as a time-tested strategy. So, in theory, any dip is an even greater buying opportunity, right? This mindset became particularly popular among retail investors after the rapid COVID rebound, when many joined the market for the first time. But here’s the catch: this narrative leans heavily on the U.S. experience.
Sceptics of the buy-the-dip approach often point to a counter-example: Japan. Japan’s Nikkei 225 famously peaked in 1989, and it took until 2024 - an arduous 35-year stretch - to reclaim those highs. Although Japan's prolonged stagnation (termed "The Lost Decades") partly explains this, China's situation challenges simple narratives further. Despite impressive GDP growth year after year, major Chinese indices like the CSI 300 and the SSE Composite remain below their 2008 peaks.
But rather than cherry-picking extreme examples, let’s take a more structured view on passive investing in international markets, with a focus in Asia. I'll reference the iShares ETFs, popular tools that provide easy exposure to various international markets. These ETFs, many introduced in the 1990s, offer nearly three decades of accessible USD-denominated, U.S.-listed asset price data. For benchmarking, I’ve added SPY (S&P 500 ETF) to the mix, despite it not being an iShares product (IVV started in the 2000s only). The table below is a compilation of that analysis - I'll refer to this as the Magic Table.
Asset | Country | Inception | CAGR | Volatility | Max. DD | Holdings | PE | PB | Div. Yield |
EWJ | Japan | 1996-03-18 | 1.7% | 22.7% | -58.9% | 183 | 15.0 | 1.4 | 2.3% |
EWH | Hong Kong | 1996-03-18 | 3.8% | 27.6% | -66.4% | 28 | 12.5 | 0.9 | 4.0% |
EWS | Singapore | 1996-03-18 | 3.0% | 27.4% | -75.2% | 18 | 13.4 | 1.6 | 3.9% |
EWM | Malaysia | 1996-03-18 | 1.2% | 27.8% | -89.2% | 30 | 13.3 | 1.3 | 3.5% |
EWY | South Korea | 2000-05-12 | 5.5% | 32.5% | -74.1% | 83 | 9.0 | 0.9 | 2.4% |
EWT | Taiwan | 2000-06-23 | 4.1% | 28.4% | -64.4% | 90 | 14.1 | 1.8 | 2.5% |
FXI | China | 2004-10-08 | 5.3% | 33.3% | -72.7% | 50 | 12.0 | 1.4 | 1.5% |
THD | Thailand | 2008-04-01 | 2.7% | 26.5% | -64.2% | 100 | 13.0 | 1.2 | 3.7% |
INDY | India | 2009-11-20 | 5.8% | 22.8% | -44.7% | 50 | 22.4 | 3.4 | 0.0% |
EIDO | Indonesia | 2010-05-07 | -0.3% | 27.1% | -63.2% | 77 | 10.0 | 1.6 | 5.9% |
EPHE | Philippines | 2010-09-29 | 1.0% | 22.5% | -53.8% | 33 | 10.0 | 1.3 | 2.3% |
SPY | United States | 1993-01-29 | 10.1% | 18.7% | -55.2% | 503 | 23.8 | 4.3 | 1.4% |
EZU | Eurozone | 2000-07-31 | 3.7% | 25.0% | -65.3% | 217 | 14.9 | 1.7 | 2.6% |
EFA | Developed Ex-US | 2001-08-27 | 5.4% | 21.1% | -61.0% | 698 | 15.8 | 1.8 | 3.0% |
EPP | Pacific Ex-JP | 2001-10-26 | 7.9% | 23.5% | -66.0% | 97 | 16.7 | 1.7 | 3.8% |
EEM | Emerging Markets | 2003-04-14 | 8.2% | 27.4% | -66.4% | 1190 | 13.9 | 1.8 | 2.3% |
AAXJ | Asia Ex-JP | 2008-08-15 | 3.9% | 25.0% | -48.9% | 920 | 14.6 | 1.8 | 1.8% |
To help interpret the table:
Country indicates the market or region targeted by the ETF.
Inception is the earliest date for which price data is available.
CAGR (Compounded Annual Growth Rate) reflects annualized returns from inception to April 14, 2025.
Volatility is annualized and computed over the same period as CAGR.
Max. DD (Maximum Drawdown) represents the largest decline from peak to trough since inception.
Holdings, P/E, P/B, and Dividend Yield are as of April 11, 2025.
Here is the TLDR of the analysis: None of the international ETFs matched the U.S. market, especially Asian composites. An example of that underperformance: investing $10,000 evenly across ETFs for Japan, Hong Kong, Singapore, and Malaysia in 1996 would yield "just" $20,800 nearly 3 decades later. Conversely, the same amount invested in SPY on the same day would have grown to $135,700 today, AND with lower volatility and maximum drawdown.
Notably, EWM (Malaysia) faced a nearly 90% wipeout during the Asian Financial Crisis, and EIDO (Indonesia) currently trades below its inception price (from 15 years ago). Even India (INDY), a standout among Asian ETFs, significantly trails the SPY in similar periods.
Adjusting for Dollar Cost Averaging
To level the playing field, I ran a DCA simulation starting in September 2010, when all ETFs in the Magic Table were available. Monthly investments of $1,000 (growing 3% per year to simulate some salary growth, or less expenses with anime figures), minus a 0.5% transaction cost, continued through April 2025.
Under this approach, the conclusion remains broadly consistent, with SPY outperforming considerably. Another sobering result: with this approach, several Asian markets - including Indonesia, Thailand, Philippines, Malaysia, Hong Kong, and South Korea delivered less than the total contributed. And while Taiwan and India fare better, they still would leave you today with more than $100,000 less than if you were investing in SPY over that time (a lot given the just north of $200,000 in total contributions).
Why Still Diversify in Asia?
So after all that, why still bother with Asia?
Overall Diversification
Let's start with the obvious. In the examples above, note that some countries (e.g., Hong Kong) had a positive cumulative return when just looking at the starting and end points (as shown in the Magic Table). But with DCA, one ends up with less money than one deposited. That's because DCA shifts the lens from time-weighted to money-weighted returns. One market can deliver stellar long-term performance, but if most of those gains come before you start investing (as in the EWH case) - or worse, if it crashes right when you're nearing retirement - your outcome may be very different. This is where diversification becomes relevant.
Diversification isn’t about chasing what’s performed best in recent times - it’s about spreading exposure so no single outcome derails your financial trajectory. This becomes especially important as your portfolio grows and you approach the stage where withdrawals begin, like retirement. Including different regions like Asia - even if some have lagged historically - helps ensure that not all of your investments are exposed to the same risks or economic cycles.
Economic Realignment and Growth
The U.S. has benefited from remarkable conditions post-WWII: a large unified market, deep capital markets, reserve currency status, and global investor trust. But the world has been shifting (even before Trump 1.0 and 2.0). The U.S. share of global GDP has fallen from ~40% in 1960 to ~25% today, while Asia’s economic footprint has expanded from ~13% to ~31%, with projections (as in this cool plot by Visual Capitalist) heading toward 40-50% by 2050.
Economic scale or growth doesn’t guarantee stock returns (as China reminds us), but it changes the backdrop. Asia’s expanding middle class, infrastructure investment, and regional integration are likely to play a larger role in the global economy going forward. It makes sense for portfolios to reflect that changing reality.
Valuation Discrepancies
Markets rotate. One reason U.S. equities have outperformed is that they’ve gotten more expensive. Shiller's CAPE ratio for the U.S. rose from 19 to 34 between 2010 and 2025. Meanwhile, China’s CAPE dropped from 26 to 15; Japan, Korea, and Hong Kong also saw multiple contraction.
This isn’t necessarily a bet on mean reversion - markets don’t owe anyone a repeat of the past. But valuation still plays a role in shaping expectations. While there's no guarantee that lower valuations lead to better returns, they often reflect more conservative assumptions and lower embedded optimism. That can offer some downside backstop if sentiment shifts or volatility returns. In that sense, Asia’s relatively lower valuations - compared to a historically expensive U.S. market - might present a margin of safety.
Currency Risk
The U.S. dollar has been on a strong run since 2008, partly bolstered by crises elsewhere - from the Eurozone debt saga to Japan’s extended currency depreciation. Over that time, the DXY index climbed from the low 70s to peaks above 110. That strength created headwinds for international investments: while the ETFs I’ve shown are traded in USD, their underlying companies operate largely in local currencies. So, when the dollar strengthens, returns from international investments take a hit once converted back into USD.
But the reverse can also happen. In 2025, for instance, the dollar already dropped by ~10%, boosting the relative appeal of foreign holdings. Currency moves are hard to predict, but they can meaningfully impact long-term returns. Holding non-USD assets - especially in regions with growing economic weight like Asia - offers a hedge against currency concentration and the evolving role of the dollar as the world’s reserve.
Final Thoughts
Looking at the data, there’s no denying the U.S. market has been the standout performer - whether you measure by cumulative gains or via a long-term DCA strategy. That success story is real. But investing isn’t about anchoring to what’s already worked. It’s about preparing for what might come next.
Asia hasn’t delivered the same equity returns as the U.S. in recent history, but it also hasn’t been given the same conditions. The U.S. has long benefited from structural advantages - a unified domestic market, reserve currency status, and strong capital markets - that many Asian economies are only beginning to replicate. Meanwhile, the region’s share of global GDP has grown dramatically, and its equity valuations remain comparatively low.
Of course, many of these macro tailwinds could apply to other markets as well. What sets Asia apart, in my view (with likely some bias given that I live in here), is its unique combination of growing economic scale, rapid technological adoption, growing middle-class consumption, and strengthening regional cooperation mechanisms like ASEAN.
So while recent historical data might suggest DCA hasn’t worked as well outside the U.S., I think looking through that lens alone misses the bigger picture - geographical diversification, long-term protection, and macroeconomic shifts. That’s why I continue to allocate regularly to international markets. And yes, when volatility hits - like in the past few weeks - I take that as an opportunity to lean in a little more (most recently by trimming some U.S. Treasuries to add exposure to Asian equities).
Disclaimer: This blog reflects my personal views and is for informational purposes only. It is not intended as financial advice or a recommendation to buy or sell any securities. Please do your own research or consult a financial advisor before making investment decisions.
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