For much of the past decade, investing globally often meant accepting lower returns in exchange for diversification. US equities delivered superior earnings growth, deeper liquidity, and consistent leadership in technology and consumer sectors. As a result, many portfolios drifted toward heavy US concentration without deliberate planning.
Looking forward in 2026, that imbalance is starting to matter. Markets outside the United States are no longer defined only by slower growth or political risk. Several regions are entering phases where profits are recovering while valuations remain well below US levels. That combination is drawing renewed attention from investors who want more than just protection from volatility. They want additional sources of return.
The shift is not about abandoning American stocks. It is about recognizing that the relative advantage of US equities is narrower than it was a few years ago.
Valuations Outside the US Are Telling a Different Story
Price levels across global equity markets reflect very different assumptions. In the United States, stock prices embed expectations of continued margin expansion and durable growth in large technology firms. Those expectations leave little room for disappointment.
In Europe, many companies are still valued as if energy stress and weak industrial demand are permanent features of the economy. Yet energy costs have stabilized, and manufacturing activity has shown signs of improvement. Japan’s market continues to trade at lower multiples despite changes in corporate behavior that favor shareholders, including higher dividends and buybacks. Emerging markets in Asia remain discounted because of geopolitical concerns and uneven recoveries, even though domestic consumption and digital infrastructure spending are expanding.
For investors, this matters because long-run returns are shaped by what is paid today. Markets that already price in strong outcomes must deliver exceptional results to justify current levels. Markets that assume stagnation can perform well with only moderate improvement.
This is why several non-US regions are being discussed as candidates for returns in the mid-teens if earnings normalize and investor confidence rebuilds.
Different Regions, Different Profit Cycles
Another reason global positioning looks more attractive is that corporate profit cycles are no longer aligned. In the US, earnings growth has already benefited from fiscal support, strong consumer demand, and large technology investment. Expectations are now high, and even solid results can struggle to move prices higher.
Elsewhere, profits are earlier in their recovery paths. European firms are benefiting from easing cost pressures and improving trade flows. Japanese companies are showing better capital discipline and stronger returns on equity. In parts of emerging Asia, domestic demand and investment in technology are helping earnings rebound after years of underperformance.
This divergence allows investors to tap into multiple growth stories rather than relying on a single economic narrative.
What Happens When Portfolios Stay Too US-Centric
A portfolio dominated by US equities is not automatically risky, but it is increasingly exposed to narrow leadership. A relatively small group of stocks now drives a large share of index performance. That structure works as long as those companies continue to deliver exceptional results.
The problem is that any setback affecting those firms, whether regulatory, political, or earnings related, can ripple through portfolios that lack meaningful exposure elsewhere. Geographic diversification spreads that risk across different business cycles, policy environments, and consumer bases.
Rebalancing internationally is less about predicting a US decline and more about avoiding dependence on one outcome.
How a Global Barbell Works
A barbell strategy separates stability from opportunity. One side remains anchored in established US companies with strong balance sheets and global reach. These firms provide liquidity, familiarity, and resilience.
The other side focuses on markets where expectations are lower and potential upside is higher. Europe offers exposure to banks, exporters, and industrial firms that benefit from cyclical improvement. Japan adds companies tied to global trade and domestic reform. Emerging Asia provides access to long-term growth linked to population trends and technology adoption.
By combining these elements, investors create a portfolio that can perform across a wider range of economic outcomes.
Turning the Idea Into Portfolio Shifts
Rebalancing does not require drastic moves. For investors whose portfolios are dominated by US stocks, even a small adjustment can change the risk profile.
One possible framework involves reducing US equity exposure from around 70% to roughly 55 or 60% . That capital can then be reallocated across developed international markets and emerging markets.
A sample structure might include:
- About 25% to 30% in Europe and Japan through broad regional or international equity funds
- Around 10% to 15% in emerging markets, with emphasis on Asia
This type of allocation keeps the US as the core holding while adding exposure to regions where valuation and earnings trends look more favorable.
Currency and Policy as Return Drivers
Global investing also introduces currency effects. A weaker dollar would increase the value of foreign holdings for US-based investors, while a stronger dollar would reduce it. Rather than viewing this purely as a risk, many investors treat currency exposure as an additional source of diversification.
Policy differences also shape market behavior. Interest rate paths in Europe and Asia do not always mirror those of the Federal Reserve. Fiscal spending priorities vary as well, influencing sectors such as infrastructure, financials, and manufacturing.
These distinctions can help smooth portfolio performance when economic conditions diverge across regions.
What Could Go Wrong
International exposure is not a guaranteed solution. Political uncertainty in Europe, trade disputes in Asia, and regulatory instability in emerging markets can derail expected gains. Corporate reform can lose momentum, and growth assumptions can prove optimistic.
There is also the possibility that US equities continue to outperform despite high valuations. If productivity growth accelerates and corporate margins remain elevated, the valuation premium could persist longer than expected.
These risks argue for measured adjustments rather than wholesale shifts.
Why the Timing Matters
As investors look beyond short-term interest rate moves and toward longer-term growth trends, relative value is becoming more important. US equities already reflect a strong outlook. Many international markets do not.
Europe, Japan, and emerging Asia enter the next phase of the cycle with lower expectations and more room for improvement. Historically, periods like this have supported phases of catch-up performance outside the United States.
That does not guarantee leadership will change, but it increases the odds that returns become more evenly distributed across regions.
A Portfolio Case for Looking Beyond Home Bias
After years of US-led gains, global equities are beginning to offer a more balanced mix of value and growth. Lower starting valuations, different profit cycles, and structural shifts abroad are reshaping the opportunity set.
A barbell approach that keeps a strong US core while adding exposure to Europe and emerging markets can reduce concentration risk and expand potential return drivers. For investors who have grown accustomed to relying on American stocks alone, the next phase of market leadership may reward those willing to think more globally about where earnings growth and valuation upside intersect.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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