The Case for a Global Equity Over USD-Centric Allocation in 2026

The global investment landscape in 2026 is marked by a striking divergence between US and non-US equities. A weakening US dollar, favorable fiscal and monetary policies in key international markets, and significant valuation gaps have created a compelling case for shifting toward a more globally diversified equity strategy. This analysis explores how investors can leverage these dynamics to tilt their portfolios toward non-US equities, capitalizing on both macroeconomic tailwinds and structural opportunities.

The Weakening USD: A Tailwind for Non-US Equities

The US dollar's decline in 2025 and its continued softness into 2026 have been pivotal in amplifying returns for non-US equities. The DXY index, a broad measure of the USD's strength, fell over 9% year-to-date in 2025 and remained weak as of late November 2025, with a cumulative decline of approximately 8% according to market analysis. This depreciation has directly boosted the USD-denominated returns of international stocks, as foreign currencies gained value for US investors. For instance, European equities surged 26% YTD in 2025, driven by falling inflation, a steeper yield curve, and robust performance in the financials sector. Similarly, Chinese and other emerging market equities have benefited from the weaker dollar, even as global earnings outlooks remain mixed according to research.

The dollar's underperformance reflects broader shifts in global monetary policy. While the Federal Reserve has maintained a cautious stance, central banks in Europe and Asia have adopted more accommodative measures, including targeted stimulus for infrastructure and defense spending according to market analysis. These policies have not only supported local economic activity but also enhanced the relative appeal of non-US equities.

Valuation Gaps: A Structural Opportunity

Beyond currency effects, non-US equities are trading at significant discounts to their US counterparts, creating a compelling value proposition. As of late 2025, forward price-to-earnings (P/E) ratios for non-US stocks were approximately 35% lower than those for US equities according to Fidelity research. This gap reflects underperformance in US markets, where the S&P 500's 10.87% YTD return in 2025 has been driven largely by mega-cap tech stocks, while broader market participation has lagged according to market analysis. In contrast, international markets-particularly in Europe and emerging Asia-offer more attractive entry points, with valuations that appear to discount pessimism about global growth.

European banks, for example, have seen a recovery in profitability and now trade at meaningful discounts to their US peers according to Fidelity research. This undervaluation stems from lingering concerns about regional economic resilience, despite improving fundamentals such as falling inflation and stronger fiscal support. Similarly, emerging markets have seen corporate earnings rebound, supported by structural reforms in countries like South Korea and improved risk appetite among global investors according to Russell Investment insights.

Policy Reforms and Sectoral Tailwinds

The resurgence of non-US equities is also being fueled by targeted policy interventions. In Europe, governments have increased spending on defense and green energy infrastructure, creating a favorable environment for industrial and technology stocks according to market analysis. Meanwhile, China's ongoing efforts to rebalance its economy toward consumption and innovation have spurred growth in sectors such as semiconductors and renewable energy. These developments are not isolated; they reflect a broader trend of policy-driven structural change that is enhancing the long-term growth prospects of non-US markets.

Looking ahead, the 10-year forecast for global equities remains optimistic. Total returns are projected to reach 7.7% annually in USD terms, with Emerging Markets and Asia leading at 10.9% and 10.3%, respectively according to GSP research. These projections hinge on continued policy support, strong earnings growth, and the sustained weakness of the dollar, which is expected to remain a tailwind for international investors.

Risks and Considerations

While the case for non-US equities is strong, investors must remain mindful of risks. Geopolitical tensions, uneven economic recoveries, and potential shifts in US monetary policy could disrupt the current momentum. Additionally, the outperformance of international markets may not persist if the dollar rebounds or if global growth disappoints. However, these risks are inherent to any investment strategy and can be mitigated through diversification and active portfolio management.

Conclusion: A Strategic Shift Toward Global Diversification

The confluence of a weak USD, attractive valuations, and supportive policy environments makes a compelling case for increasing exposure to non-US equities in 2026. By broadening their allocations beyond a USD-centric framework, investors can harness the strength of global markets while reducing reliance on the relative stagnation of US equities. As history has shown, diversification is not merely a defensive tactic-it is a proactive strategy for capturing growth in an increasingly interconnected world.