Regional Rebalancing: Why Eurozone and Chinese Equities Are the New Safe Havens

Investors navigating the choppy waters of U.S. trade policy uncertainty are increasingly turning to Eurozone and Chinese equities as strategic anchors for growth and diversification. With North American markets buffeted by tariff disputes, inflation volatility, and geopolitical headwinds, the case for shifting allocations toward these regions grows stronger. Supported by valuation advantages, emerging fiscal stimulus, and infrastructure-driven growth, Eurozone and Chinese equities present a compelling opportunity to capitalize on resilient economies and reduced capital outflows.

The Eurozone: Fiscal Flexibility and Infrastructure Renewal

The Eurozone's economic narrative is shifting from stagnation to strategic reinvestment. Post-pandemic fiscal frameworks, such as the EU's NextGenerationEU recovery plan, have catalyzed infrastructure spending, boosting sectors like renewable energy and transportation. While specific Eurozone ETF performance data isn't detailed in the provided research, strategic allocations like the BMO International Dividend ETF (ZDI)—a component of the model portfolio's equity sleeve—highlight this trend. These funds target firms benefiting from regional cohesion funds and green energy initiatives, offering stable dividends and growth in a low-yield environment.

Geopolitical shifts further underscore the Eurozone's appeal. Reduced reliance on U.S. dollar dominance and strengthened trade ties with Asia (via China's Belt and Road Initiative) are reducing capital outflows. Meanwhile, the European Central Bank's gradual pivot toward rate stability provides a supportive backdrop for equity valuations.

China: Valuation Discounts and Fiscal Tailwinds

The BMO MSCI China Selection Equity Index ETF (ZCH) exemplifies China's potential. With a 25.36% YTD return as of July 2025 and a 56.45% one-year performance, ZCH has outpaced broader North American indices like the S&P/TSX 60 (which returned just 12.05% over the same period). The fund's focus on ESG-driven Chinese equities aligns with Beijing's push for domestic consumption growth and tech-sector innovation.

China's fiscal flexibility stands in contrast to the U.S. Federal Reserve's restrictive policies. Recent stimulus measures—including tax breaks for manufacturing and green energy subsidies—have bolstered corporate earnings and consumer sentiment. Reduced capital outflows, driven by tighter regulatory controls and a rebound in foreign direct investment, further stabilize the equity landscape.

Navigating Risks: Gold as a Hedge, Not an Equity Play

While ZGLD (BMO Gold Bullion ETF)—with its 49.07% annualized returns—is a standout performer, its role remains defensive. Gold's rise reflects its status as a safe haven amid U.S.-China trade tensions and inflation fears. However, investors should not confuse its hybrid allocation with direct equity exposure. ZGLD's volatility (14.03%) and regional categorization as “Other” make it a diversifier, not a growth engine for regional equity strategies.

The Rebalancing Playbook

1. Eurozone Equities: Allocate 5–10% to broad-based ETFs like ZDI or sector-specific funds targeting renewables and infrastructure.
2. Chinese Equities: Increase ZCH exposure to 5–8% of the portfolio, leveraging its ESG tilt and fiscal tailwinds.
3. Risk Mitigation: Maintain a 5% allocation to ZGLD to buffer against macro shocks, but avoid overconcentration.

Conclusion: Positioning for the Next Cycle

The era of U.S.-centric equity dominance is fading. Eurozone and Chinese equities offer a dual advantage: valuation discounts relative to North America and structural growth fueled by fiscal stimulus and infrastructure spending. While geopolitical risks persist, the data underscores that these regions are better positioned to weather trade policy turbulence. Investors who rebalance now stand to capture asymmetric upside—before the rest of the market catches on.

The path forward is clear: pivot east and west, but anchor with discipline.