International Stocks as the 2026 Outperformer: Strategic Reallocation to Global Growth Markets

The global investment landscape is undergoing a profound reallocation, driven by shifting macroeconomic dynamics and evolving market expectations. According to the Bank of America Global Fund Manager Survey for November 2025, international equities have emerged as the most anticipated asset class for outperformance in 2026, with fund managers increasingly positioning for global growth opportunities. This trend reflects a broader recalibration of risk appetite, dollar weakness, and structural shifts in regional markets. For investors, the implications are clear: a strategic pivot toward international stocks-particularly emerging markets and Asia-Pacific regions-offers a compelling path to capitalize on the 2026 rebalancing cycle.

BofA Survey: A Consensus for Global Equities

The BofA survey underscores a significant shift in fund manager sentiment. Equity exposure has surged to a net 28% overweight, the highest level in seven months, with international stocks (ACWX) dominating expectations for 2026 performance. This optimism is rooted in divergent regional growth trajectories and the waning dominance of U.S. equities. Notably, U.S. stocks remain underweighted at a net 14%, while emerging markets and the U.K. face declining allocations, with the latter dropping to a net 20% underweight.

Despite this bullish positioning, caution persists. A staggering 58% of managers still view global equities as overvalued, signaling concerns about potential corrections. This duality-optimism tempered by valuation skepticism-highlights the need for disciplined, tactical entry points rather than broad-based overexposure.

Dollar Weakness: A Tailwind for International Returns

The U.S. dollar's decline in 2025 has been a critical catalyst for international equity outperformance. For U.S. investors, the depreciation of the dollar has amplified returns from foreign markets through currency appreciation. The Morningstar Global Markets ex-US Index has outperformed the U.S. benchmark, with emerging markets-led by the Morningstar Korea Index-surging over 75% in dollar terms. Similarly, the MSCI EAFE Index has benefited from the dollar's weakness, outperforming the S&P 500.

This dynamic is not merely a short-term anomaly. Historically, a weaker dollar has acted as a drag on international returns due to hedging costs, but in 2025, it has served as a tailwind. For investors, this suggests that unhedged exposure to international markets-via ETFs like EEM (Emerging Markets) and EWY (Korea)-could enhance returns, provided regional fundamentals remain robust.

U.S. Equity Underperformance: Structural Headwinds

Contrasting the global optimism is a growing consensus that U.S. equities face structural headwinds. Goldman Sachs' Peter Oppenheimer warns that U.S. stocks are projected to underperform over the next decade, with an average annual return of just 6.5%-well below the historical median of 9.3%. This forecast is driven by two key factors:
1. Elevated Valuations: The U.S. market trades at a forward P/E of 23x, with valuations expected to decline by 1% annually over the next decade.
2. Concentration Risk: The Magnificent 7 tech stocks now account for a disproportionate share of market capitalization. If these leaders falter without a new cohort of "superstars," broader U.S. equity returns will stagnate.

While Goldman Sachs cautions against a tech bubble-citing strong free cash flows and buybacks-the long-term underperformance of U.S. equities creates a compelling case for diversification.

Strategic ETF Recommendations and Timing Implications

For investors seeking to capitalize on the global rebalancing trend, two ETFs stand out:
- EEM (iShares MSCI Emerging Markets ETF): Emerging markets have been among the most dynamic beneficiaries of dollar weakness and structural growth in Asia. With EEM tracking a broad basket of emerging market equities, it offers exposure to high-growth economies like India, China, and Southeast Asia.
- EWY (iShares MSCI South Korea ETF): South Korea's tech-driven recovery and export boom have propelled its markets to record levels. EWY provides focused access to a region where innovation and global demand are converging.

Timing is critical. The BofA survey indicates that fund managers are already shifting allocations, with international equity exposure at a seven-month high. However, the 58% valuation concern suggests that investors should prioritize tactical entry points rather than aggressive overcommitment. A phased approach-leveraging dollar weakness and regional momentum-could optimize risk-adjusted returns.

Conclusion: A Global Rebalancing Opportunity

The 2026 investment horizon is defined by a clear divergence: U.S. equities face structural headwinds, while international markets-particularly emerging economies and Asia-Pacific regions-offer compelling growth prospects. The BofA survey, combined with dollar weakness and regional outperformance, paints a roadmap for strategic reallocation. By prioritizing ETFs like EEM and EWY, investors can position themselves to benefit from the global rebalancing trend while mitigating overvaluation risks. As always, discipline and timing will be paramount in navigating this shifting landscape.