Markets are turning away from the US. This is where they’re heading
Questor: There’s far more to the world than what’s across the pond Russ Mould
Published 16 February 2026 6:00am GMT
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Questor, The Telegraph’s investing column, takes a weekly view of the markets – what is moving them, what lies ahead and how all of this could affect your portfolios and financial goals.
“American exceptionalism” has long been the order of the day, as the US stock market proved impervious to trouble, able to shrug off any issues to keep marching higher.
But today, US stocks are gently underperforming their fellow markets, and the curiosity is becoming a trend.
In December 2024, the S&P 500 comprised 64.3pc of the FTSE All-World index, an all-time high. Today, that has trickled down to 60.4pc.
Perhaps markets are subtly sending the message that there may be better value to be had elsewhere. Considering the US index topped out at 59.2pc of the All-World benchmark during the dotcom bubble, it’s worth serious consideration.
As such, one of the words which keeps cropping up in the reams of research from the big investment banks that this document consumes with gusto is “broadening”. This is the term du jour from strategists who argue that the global rally in stock markets is set to continue, but it is other markets than the previously all-conquering USA set to lead the way.
This change in tone may reflect uncertainty, or discomfort, regarding the Trump administration’s trade, industrial and foreign policies, as well as its apparent challenges to the US Federal Reserve’s independence. Dollar weakness, as benchmarked by the trade-weighed DXY (or ‘Dixie’) index, feeds into this narrative.
Equally, it may just be an awareness that US equities are trading in the top 10pc of valuation ranges on any metric you care to mention, relative to their history. The combination of a lofty price tag and lofty expectations means it may not take much for perception to change and confidence to sag.
This already seems to be the case in previously popular – and richly valued – software and data analytics stocks, thanks to (as yet unproven) concerns over what artificial intelligence agents and platforms may do to their business models.
Big wide world
If investors do decide to diversify away from the US, the issue becomes one of where to research next.
An intrepid investor who feels it is right to move away from the most popular investing option may be inclined to look at one of the least popular, one that still attracts little or no attention. Enter: emerging markets (EMs).
Intriguingly, the MSCI Emerging Markets index seems to be breaking out above its former all-time high, despite trading at all-time relative lows compared to America’s S&P 500, proving the widespread disinterest.
Of course, none of this guarantees further upside in the MSCI EM benchmark. But a weaker dollar is traditionally seen as a boost for emerging markets, as it makes it easier for those nations who borrow in dollars to service their debts.
Rising commodity prices can be a tailwind for them, too, as many developing nations are major producers of precious and industrial metals, as well as oil and gas and agricultural crops.
Right now, the dollar is weakening and many commodities are surging to all-time.
Emerging options
Careful research is still required, as emerging markets are not homogenous by any means. They come with a range of risks, including politics, currency movements, corporate governance and how easy it is (or otherwise) to buy and sell on local exchanges.
As such, these markets are not suitable for everyone.
They represent just 10pc of the FTSE All-World index, so any allocation over that in the equity portion of a balanced portfolio would represent an aggressive view.
One way to cut down on the research and mitigate some of the risk could be to seek broad-brush exposure via actively or passively managed funds, which will provide access to a basket of countries and industry sectors, in either equities, bonds, or both, in exchange for the product provider’s fees.
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But it is possible that at least some of the risks are already factored into EM valuations. The MSCI Asia-Pacific ex-Japan index is currently benefiting from the technology exposure provided by Taiwan’s TSMC, Korea’s Samsung Electronics and SK Hynix, and the AI magic dust associated with Chinese internet giants Alibaba and Tencent.
The index is hitting new all-time highs, but the index’s relative rating compared to the S&P 500 is also still near historic lows.
Eastern Europe may just be too difficult for some to consider, given the proximity of the war in Ukraine and Russia’s fall from grace.
That leaves Latin America, which has a tiny weighting in the All-World indices, with Brazil, Chile, Colombia and Mexico chipping in barely 1pc of the benchmark’s capitalisation. Even here, though, the MSCI index is rallying, helped by a Rightward shift in politics in Argentina, Peru and Bolivia, and scope for interest cuts as reforms put a lid on inflation, as well as strong industrial and precious metal prices.
It’s a wide world out there.
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