Home Insights Macro views Capital markets: Shaping and scaling the future
Aerial view of a shipping yard at sunset.

Capital markets: Shaping and scaling the future

A Q&A with Seema Shah, post 2025 Milken Global Conference

May 28, 2025 | 4 min read
Seema Shah
Chief Global Strategist
linkedin icon link icon

Seema Shah, chief global strategist at Principal Asset Management participated on a panel at this year’s Milken Institute Global Conference that tackled the transformation of global capital markets amid persistent inflation, geopolitical tensions, and tariff driven uncertainty. The panelists openly addressed topics affecting the global economy, exploring issues ranging from the increasing appeal of Europe, along with the impact of tariffs, over-regulation, defense spending, and other factors that will influence the future trajectory of the global economy.

Q: From an investor’s perspective, what is your view of the global economy today?

Seema Shah: A lot of today’s challenges trace back to COVID. Even though we’d like to forget about it, the pandemic triggered significant shifts, like the transfer of capital from government to corporations and households. This resulted in a surge in government debt, which is influencing the Trump administration's actions. Three interconnected policies are at play: 1) tariffs are being used to generate revenue, which could help offset proposed tax cuts; 2) deregulation aims to spur growth, allowing the government to grow out of some of its debt issues; and 3) I’m convinced that concerns about government debt will persist, leading to some hair-brained ideas from governments over the next decade. So, market and policy volatility are probably here to stay.

Treasury Secretary Bessent’s mention of deregulation and tax cuts indicates that the Trump Administration is aware of potential issues and wants to act proactively. Although an economic slowdown is likely, we still don’t anticipate a recession as corporate and household balance sheets look strong, and the last decade shows that policymakers are eager to step in at the first sign of trouble. Because of this eagerness, the business cycle, as we knew it, is almost completely dead.

This is important for investors. If the business cycle is essentially dead, we probably won’t see the robust returns in risk assets that we had after the global financial crisis. Over the next decade, we should expect low returns coupled with high volatility. This reality may drive more interest in private markets and global diversification as investors seek ways to achieve the strong outcomes they’ve experienced during the last 10 years.

Q: Many investors are looking at Europe, suggesting that this could be the moment to create multinational giants or at least larger companies that might appeal to investors. Do you agree with that sentiment, and are you advising clients to rethink exposures outside of the U.S.?

Seema Shah: Last year, former ECB President Mario Draghi released the “Draghi Report,” which proposed four objectives: boosting innovation, particularly in high technology, adopting a new industrial strategy, combining tax, trade, and foreign policy, and reforming competition law to facilitate mergers of European corporations. The report was widely praised for its valuable insights. But, funny enough, it was immediately put on the back burner because it called for deregulation—a topic too often dismissed in Europe.

As a result, investors have come to see Europe as a “perennial disappointment.” It tends to perform well for a few months, but then it just goes nowhere. However, I’m noticing a shift in how people are thinking about Europe.

For the first time in many years, portfolio managers are starting to consider that something worthwhile might happen there. I was recently in Germany, and the vibe was different. It wasn’t about losing faith in the U.S., worrying about market dysfunction, or the dollar disappearing. Instead, many see opportunities that have been stifled by regulations. For the first time that I can remember, European governments are actually talking about deregulation. Earlier, I was in Madrid, and investors there were skeptical. They believed the real game changer would be if the market started opening up. And for the first time I can remember, we’ve finally started to see that in recent weeks.

Investors aren’t looking to shift away from the U.S. entirely. Still, if there is a marginal dollar to invest, they are considering the global opportunity set, and Europe is starting to come into focus. As a result, I’m trying to stay optimistic. This year will likely be tough, but looking ahead five years, Europe seems like a much more interesting prospect than it has in the past.

Q: We’ve heard a lot about shifting production centers, reshoring, new industrial policies, and increasing defense spending in Europe. What do you make of that as an opportunity?

Seema Shah: It’s interesting to see what’s happening in Europe with defense spending, for example. A lot of people talk about it, but the truth is that about 50% of military expenses come from outside Europe. So, the impact on the real economy is fairly small.

Now, the European Commission is saying Europe needs to start producing more military equipment at home. But let’s be real—it’s not something that can happen overnight or even in five years. We’re probably looking at a timeline of 10 to 15 years for things like advanced military assets and munitions.

So, while it’s great to think about new trends in defense spending and industrial policy, we also need to keep in mind that this is a long process. We shouldn’t just focus on the here and now; we should really consider what’s going to happen over the next 5, 10, or even 15 years. That’s why, when thinking about Europe as an investment story, it’s important to look beyond the immediate headlines. The gradual shift toward greater self-reliance in defense and industrial capacity may not move markets tomorrow, but it lays the groundwork for a more resilient and strategically independent Europe. Over time, that could become a compelling pillar in a stronger, more viable investment thesis for the region.

Macro views
Disclosure

For Public Distribution in the U.S. For Institutional, Professional, Qualified and/or Wholesale Investor Use Only in other Permitted Jurisdictions as defined by local laws and regulations.

Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal. Private market investments, unlike publicly traded stocks, involve various risks due to illiquidity, lack of transparency, and higher minimum investment requirements. These risks include liquidity risk, market risk, capital risk, and regulatory risk. Additionally, private market investments often involve higher fees and expenses and may have longer investment horizons. Target-date portfolios are managed toward a particular target date, or the approximate date the investor is expected to start withdrawing money from the portfolio. As each target-date portfolio approaches its target date, the investment mix becomes more conservative by increasing exposure to generally more conservative investments and reducing exposure to typically more aggressive investments. Neither the principal nor the underlying assets of target-date portfolios are guaranteed at any time, including the target date. Investment risk remains at all times. International investing involves greater risks such as currency fluctuations, political/social instability, and differing accounting standards.

Important information

Views and opinions expressed are accurate as of the date of this communication and are subject to change without notice. This material may contain ‘forward-looking’ information that is not purely historical in nature and may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the viewer.

The information in the presentation should not be construed as investment advice or a recommendation for the purchase or sale of any security. The general information it contains does not take account of any investor’s investment objectives, particular needs, or financial situation.

This material is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.

This document is intended for use in:

  • The United States by Principal Global Investors, LLC, which is regulated by the U.S. Securities and Exchange Commission.
  • Europe by Principal Global Investors (Ireland) Limited, 70 Sir John Rogerson’s Quay, Dublin 2, D02 R296, Ireland. Principal Global Investors (Ireland) Limited is regulated by the Central Bank of Ireland. Clients that do not directly contract with Principal Global Investors (Europe) Limited (“PGIE”) or Principal Global Investors (Ireland) Limited (“PGII”) will not benefit from the protections offered by the rules and regulations of the Financial Conduct Authority or the Central Bank of Ireland, including those enacted under MiFID II. Further, where clients do contract with PGIE or PGII, PGIE or PGII may delegate management authority to affiliates that are not authorized and regulated within Europe and in any such case, the client may not benefit from all protections offered by the rules and regulations of the Financial Conduct Authority, or the Central Bank of Ireland. In Europe, this document is directed exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients (all as defined by the MiFID).
  • United Kingdom by Principal Global Investors (Europe) Limited, Level 1, 1 Wood Street, London, EC2V 7 JB, registered in England, No. 03819986, which is authorized and regulated by the Financial Conduct Authority (“FCA”).
  • This document is marketing material and is issued in Switzerland by Principal Global Investors (Switzerland) GmbH.
  • United Arab Emirates by Principal Investor Management (DIFC) Limited, an entity registered in the Dubai International Financial Centre and authorized by the Dubai Financial Services Authority as an Authorised Firm, in its capacity as distributor / promoter of the products and services of Principal Asset Management. This document is delivered on an individual basis to the recipient and should not be passed on or otherwise distributed by the recipient to any other person or organisation.
  • Singapore by Principal Global Investors (Singapore) Limited (ACRA Reg. No.199603735H), which is regulated by the Monetary Authority of Singapore and is directed exclusively at institutional investors as defined by the Securities and Futures Act 2001. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
  • Australia by Principal Global Investors (Australia) Limited (ABN 45 102 488 068, AFS Licence No. 225385), which is regulated by the Australian Securities and Investments Commission and is only directed at wholesale clients as defined under Corporations Act 2001.
  • Hong Kong SAR (China) by Principal Asset Management Company (Asia) Limited, which is regulated by the Securities and Futures Commission. This document has not been reviewed by the Securities and Futures Commission.
  • Other APAC Countries/Jurisdictions. This material is issued for Institutional Investors only (or professional/sophisticated/qualified investors, as such term may apply in local jurisdictions) and is delivered on an individual basis to the recipient and should not be passed on, used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.

Principal Global Investors, LLC (PGI) is registered with the U.S. Commodity Futures Trading Commission (CFTC) as a commodity trading advisor (CTA), a commodity pool operator (CPO) and is a member of the National Futures Association (NFA). PGI advises qualified eligible persons (QEPs) under CFTC Regulation 4.7.

Principal Asset Management℠ is a trade name of Principal Global Investors, LLC.

Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc.

© 2025 Principal Financial Services, Inc. Principal®, Principal Financial Group®, Principal Asset Management, and Principal and the logomark design are registered trademarks and service marks of Principal Financial Services, Inc., a Principal Financial Group company, in various countries around the world and may be used only with the permission of Principal Financial Services, Inc.

4530264
About the author