2. Changes in Fiscal Spending: The US employed expansionary fiscal policy after COVID-19, including roughly $1 trillion in funding from the Inflation Reduction Act. Outside the US, meanwhile, austerity was the prevailing policy during the same time frame. However, we’ve begun to see a reversal of that trend. 

In the US, the pace of new fiscal stimulus has moderated. Couple that with last year's roll-out of the Department of Government Efficiency and its heavy, targeted cuts to spending, and the fiscal outlook for the US is projected to be contractionary relative to recent levels.

By contrast, the fiscal spending outlook elsewhere looks to be on the upswing: High-profile estimates for spending pledges on infrastructure and defense are in the $1.5 trillion range in Europe. The bulk of this proposed spending came from Germany as part of significant changes to the debt-spending philosophy of the world’s third-largest economy, but there's also prospective fiscal stimulus on the horizon in Japan.

3. Continued Trade Tensions: Given the emphasis on tariffs during President Donald Trump’s campaign, their Liberation Day roll-out shouldn’t have been much of a surprise. Nevertheless, the sudden and unclear implementation caught markets off guard, and now the continued uncertainty over trade policy has only continued as the Trump administration finds alternative ways to implement tariffs and trade partners respond with retaliatory tariffs of their own.

While companies worldwide have developed global supply chains over decades, foreign firms have the potential to shift their output to destinations outside the US to avoid some of the tariff impacts. Domestic producers, however, may be finding it harder to manage the impact of shifting tariffs if they rely on foreign-sourced components to any extent. Both imported Personal Consumption Expenditures¹ core goods and durable goods prices rose by 1.5% through January 2026, showing that domestic producers may have eaten some costs, but have also begun to pass the costs on to consumers, who may have either stopped buying certain products together or begun purchasing more affordable alternatives.

4. Increased Focus on Shareholder Returns: As a means of encouraging both domestic and foreign investment in Japanese equities, the Tokyo Stock Exchange instituted reforms in 2023 aimed at improving corporate governance. These reforms encouraged firms to focus on improving their price-to-book² ratios (which for many companies on the exchange were below 1.0), as well as an increased emphasis on improving shareholder returns. These reforms have had a positive impact thus far, not only in terms of increased share buybacks and dividends, but also through rising share prices. 

On the heels of this program’s success in Japan, exchange operators in South Korea enacted a similar program in 2024, while further reforms were announced in early 2025. Korean equities have already begun to benefit from the implementation of these programs, though it is still early days and there's still potential for adoption to spread.

5. Valuation Gaps: Pundits have been using valuation gaps to justify "why international" for years. And while their assertion was correct—valuation gaps were at noteworthy levels relative to history—the unfortunate reality is that it is fairly common for international equities to trade at a discount vs. their US peers (FIGURE 2). 

Though we don’t necessarily see this valuation gap alone as a catalyst for international equities to outperform, its breadth leaves plenty of room for international-equity valuations to become richer while still remaining cheap relative to US markets. 

Even with their recent performance advantage, international markets continue to be attractively valued relative to US equities. Through March 31, 2026, the MSCI ACWI ex USA Index was trading at a roughly 33% discount to the S&P 500 Index. 

These five trends might just be the catalysts we’ve been waiting for to spur outperformance from international equities.  

The Bottom Line 

For years, we’ve been reminded of the diversification^* benefits brought by allocating to international equities, with hopes that mean reversion could drive returns due to cheap valuations. What we’ve seen is that those low valuations have been a prerequisite, but weren’t enough to generate competitive relative returns alone. However, these five trends might just be the catalysts we’ve been waiting for to spur outperformance from international equities.