The Great Geographic Pivot: Why International Markets Demand Your Attention in 2026

For the better part of two decades, U.S. equity investors have been running a one-legged race. The S&P 500's dominance has been so pronounced—underpinned by technology leadership, regulatory advantages, and the dollar's reserve currency status—that international developed markets have been deemed as secondary considerations in investors portfolios, but we are now witnessing a fundamental rebalancing.

The numbers tell a clear story. At the end of 2024, the U.S. represented roughly 65% of global market capitalization despite accounting for approximately 25% of global GDP. Europe and developed Asia—home to high-quality, dividend-paying businesses—traded at valuations approaching 30% below the S&P 500 on a price-to-earnings basis. That gap hasn't just normalized; it has inverted in favor of international exposure.

The Structural Drivers of Rebalancing

Three structural forces are converging to reshape capital flows:

Firstly, valuation mean-reversion. After years of being underweighted, European equities—particularly in industrials, consumer staples, and financial services—now offer genuine risk-reward asymmetry. German and Swiss industrial manufacturers, which fell out of favor during the pandemic, are benefiting from reshoring efforts and renewed infrastructure investment. French luxury goods exporters, battered by China's consumer slowdown in 2024 and 2025, are positioned for mean reversion as high-income consumers globally stabilize.

Secondly, geopolitical de-risking. The U.S. trade policy environment remains uncertain, but for international developed markets, clarity itself is an asset. European policymakers have accelerated defense spending, infrastructure modernization, and supply chain diversification initiatives. Japan's reopening to inbound tourism and gradual wage growth are translating into sustained consumer demand. These aren't speculative stories—they are measurable improvements in medium-term fundamentals.

Third, currency positioning. The dollar has appreciated roughly 8% against a basket of developed market currencies since mid-2024. For U.S.-based investors, this headwind creates an embedded currency opportunity: as the dollar normalizes or weakens from these levels, international returns become enhanced by currency translation gains. Conversely, if the dollar stabilizes here, international equities have still outperformed on a local currency basis, making the diversification legitimate rather than dilutive.

Where International Exposure Makes Sense

We are not suggesting complete abandonment of the U.S. market. Quality tech remains essential for long-term exposure to productivity gains and AI infrastructure. Rather, we are suggesting deliberate reweighting toward international developed markets.

For portfolios currently skewed 85%+ to U.S. equities, a measured rebalancing toward 60-65% U.S. exposure, with 20-25% allocated to developed international markets and 10-15% to emerging markets, reflects both the structural opportunity and appropriate diversification discipline.

This does not require abandonment of fundamental principles. You still own quality businesses with durable competitive advantages and sustainable cash flows. You still maintain valuation discipline. You simply expand the geographic aperture to capture opportunities that have been persistently undervalued.

After decades of combined experience through currency crises, emerging market contagion, and pandemic-driven regime shifts, we have learnt that the greatest returns often come from contrarian geographic positioning. Right now, international developed markets offer exactly that.