Investors have long leaned on the United States for the bulk of their equity allocations, driven by the promise of innovation and a track record of outperformance. Yet, as 2025 witnessed an international rally with the S&P Global Ex-US BMI up 28% and the S&P Developed Ex-US BMI surging 31%—compared with the S&P 500s 16% gain—there is a clear opening to broaden horizons.
With US mega-cap giants responsible for roughly 70% of 2025s gains and stocks trading at 22x forward earnings, many portfolios remain exposed to single-market risk. Todays challenge is to balance that home bias with new sources of growth abroad.
The Case for Diversification Beyond US Borders
Overconcentration can leave investors vulnerable to sector rotation, regulatory shifts and technological cycles. Portfolios that are portfolios heavily skewed to US mega-caps may miss out on the next wave of global expansion powered by demographic shifts, policy reforms and industrial investment.
By allocating beyond the domestic market, investors tap into regions where growth prospects are grounded in fundamentals rather than momentum alone. In 2025, international markets outperformed US equities by 12 percentage points on average, underscoring the importance of a truly global approach.
Performance Trends and Valuation Insights
Valuation spreads between regions are compelling. Emerging market equities trade at discounts to developed market valuations when measured on price-to-book and price-to-earnings bases. Meanwhile, consensus forecasts peg EM earnings growth at 17% through 2026, versus 12% for the US over the same period.
That valuation gap provides a buffer against volatility and a platform for outsized returns if emerging and non-US developed markets deliver on growth expectations.
Spotlight on Emerging Markets Opportunities
Emerging economies are benefiting from a weaker US dollar, disinflation and a shift in supply chains towards Asia, Latin America and Africa. Key drivers include supply chain diversification and resilience, AI and semiconductor capital spending, digital adoption and energy transitions.
- India: Robust domestic demand and ongoing financial sector reforms.
- South Korea & Taiwan: Growth in high-performance computing and chip manufacturing.
- Brazil & Gulf States: Attractive yields, stable fiscal positions and yield plays.
- Vietnam: Private-led green innovation under new government incentives.
Emerging market debt also stands out, with real yields exceeding those in developed markets, supported by fund inflows and low net external financing.
Seizing Developed Markets Ex-US Prospects
Developed regions outside the US offer pockets of stability and innovation. Europe benefits from sector rotation into technology, defense and healthcare, while Japan and Korea see governance improvements spurring investor confidence.
- Europe: Reasonable valuations and a pipeline of IPOs in industrials and healthcare.
- Japan: Corporate reforms enhancing shareholder returns and productivity.
- UK & Australasia: Fiscal support mixed with strong export sectors.
These markets can act as ballast against emerging market volatility, smoothing portfolio returns over market cycles.
Thematic and Sustainable Investment Themes
Theme-based strategies enable exposure to global megatrends. Investors can target the future of energy and innovation through clean electrification, green infrastructure and renewable finance in BRICS nations and frontier economies.
- AI Diffusion: Beyond US tech giants, AI adoption across Europe and Asia.
- Societal Shifts: Longevity and aging populations driving healthcare demand.
- Multipolar World: Trade and policy realignments benefiting diverse exporters.
Embedding sustainability in emerging and frontier markets aligns growth with environmental and social impact, attracting both public and private capital.
Navigating Macro Policies and Risks
Global growth is projected at 3.3% in 2026, supported by technology investment and fiscal backing that offset trade policy headwinds. Anticipated Fed rate cuts may weaken the dollar further, enhancing returns in non-US currencies.
Risks remain: potential US policy shifts, renewed trade tensions, uneven inflation dynamics and earnings surprises in large economies like China. Country selection and a focus on quality are essential as dispersion rises across markets.
Practical Steps for Global Market Allocation
Investors can start by rotating toward higher-quality sovereign and corporate issuers in EM, while maintaining light exposure to China and overweight positions in India, Mexico, Indonesia and Gulf states. Regular rebalancing helps capture regional momentum and manage risk.
By crafting a diversified, theme-driven portfolio that integrates both emerging and developed markets ex-US, investors not only seek enhanced returns but also build resilience against market shocks confined to any single economy.
Embracing global markets means looking beyond familiar borders to discover new engines of growth and innovation. As the world enters a new investment cycle, those who diversify wisely stand to benefit from a richer, more balanced set of opportunities.
