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International Stocks Poised to Outperform U.S. Markets

  //stocks-investing.news-articles.net/content/202 .. nal-stocks-poised-to-outperform-u-s-markets.html
  Published in Stocks and Investing on Sunday, February 22nd 2026 at 19:01 GMT by The Motley Fool
      Locales: UNITED STATES, UNITED KINGDOM, JAPAN

Monday, February 23rd, 2026 - For over a decade, U.S. equities have enjoyed a period of sustained dominance, often overshadowing international markets. However, a recent report from investment giant Vanguard suggests this era may be drawing to a close. The firm is now projecting a scenario where international stocks could outperform their U.S. counterparts in the coming years, prompting investors to re-evaluate their portfolio allocations.

The Valuation Argument: Undervalued Opportunities Abroad

The core of Vanguard's analysis rests on the principle of valuation. U.S. stocks, after a prolonged bull run, currently trade at comparatively high price-to-earnings (P/E) ratios. This suggests that future gains may be harder to come by, as much of the positive outlook is already priced in. In contrast, many international markets, particularly in Europe (excluding the UK and Japan) and select areas within Asia, are exhibiting significantly lower P/E ratios. This indicates potential undervaluation, presenting opportunities for investors to acquire assets at more attractive prices.

This isn't simply a matter of 'cheapness' for its own sake. Lower valuations often suggest that investor expectations are more modest, creating room for positive surprises and outsized returns should economic conditions improve. Vanguard's data shows a marked divergence in valuation metrics, with certain emerging markets offering P/E ratios substantially below those seen in the U.S.

Economic Rebalancing and Emerging Market Growth

Beyond valuation, a key driver of Vanguard's revised outlook is a shift in global economic leadership. While the U.S. economy has demonstrated remarkable resilience, its growth rate is beginning to moderate. Simultaneously, several emerging markets are experiencing accelerating growth, fueled by factors like rising domestic consumption, infrastructure development, and increasing integration into the global economy.

Specifically, Vanguard highlights Europe (excluding the UK and Japan) as a region poised for recovery. Post-pandemic, several European economies are undergoing structural reforms and benefiting from increased investment in green technologies and digitalization. In Asia, select countries with strong domestic demand and favorable demographics are also expected to contribute significantly to global growth. This broadening of the growth engine suggests that the U.S. may no longer be the sole driver of global market returns.

Portfolio Implications: How to Position for International Gains

For investors seeking to capitalize on this potential shift, Vanguard recommends a three-pronged approach:

• Diversification is Key: The most fundamental step is to ensure a well-diversified portfolio that includes a meaningful allocation to international stocks. Over-concentration in U.S. equities leaves investors vulnerable to domestic economic headwinds and potentially missing out on gains elsewhere.
• ETFs for Efficient Access: Exchange-Traded Funds (ETFs) provide a cost-effective and convenient way to gain exposure to a broad range of international markets. Vanguard specifically suggests focusing on ETFs that track European (ex-UK/Japan) and emerging market indices. These ETFs can offer instant diversification and professional management.
• Embrace a Long-Term Horizon: Investing in international markets requires patience. These markets can be more volatile than the U.S., and it may take time for the expected outperformance to materialize. A long-term investment horizon allows investors to ride out short-term fluctuations and benefit from the underlying growth trends.

Navigating the Risks: Currency and Geopolitics

While the outlook for international stocks is encouraging, investors must also be aware of the associated risks. Currency risk remains a significant factor. Fluctuations in exchange rates can erode returns when converting international investments back into U.S. dollars. A strengthening dollar, in particular, can negate some of the gains achieved in local currencies. Geopolitical risk is another critical consideration. Ongoing conflicts, trade tensions (particularly those involving China and the U.S.), and political instability in certain regions can all negatively impact investment returns. The continued, if stabilized, conflict in Ukraine and related sanctions continue to cast a shadow over European markets.

Furthermore, regulatory differences and varying accounting standards across countries can add complexity and potential risk to international investments. Investors must also consider the potential for political interference or unexpected policy changes in certain markets.

The Future of Global Investing

Vanguard's report doesn't predict the outright decline of U.S. markets. Rather, it suggests a rebalancing of global returns, where international stocks play a more prominent role. This shift isn't simply a tactical move; it reflects a fundamental change in the global economic landscape. As developing economies mature and contribute a greater share of global growth, investors who diversify internationally may be better positioned to capture long-term returns. However, diligent research and a comprehensive understanding of the risks remain essential for navigating this evolving investment environment.