International stocks came into 2026 with real momentum, after outpacing US stocks by some 15 percentage points in 2025.¹

While the recent market pullback has interrupted that momentum to a degree, as of mid March both developed and emerging market stocks were still outperforming US stocks on a year-to-date basis.²

While past performance does not foretell the future, there are many reasons why investors might want to maintain an allocation to non-US stocks in 2026 in a diversified portfolio. Even after a year of outperformance, a large valuation gap still remains: Foreign large-cap stocks recently traded at about a 30% discount to US stocks on a forward price/earnings (PE) ratio comparison and a more than 50% discount on a price-to-book-value basis.³

Yasmin Landy, a Fidelity institutional portfolio manager focused on international stocks, notes that several of the forces that drove strong international performance last year still remain intact, and new drivers have been emerging. The US dollar, down by about 10% in 2025 relative to a basket of foreign developed-market currencies,⁴ remains under pressure as foreign businesses and investors diversify away from the US dollar in trade and investing decisions (when the dollar declines, foreign currency-denominated investments become more valuable to US investors). Currency movements are notoriously difficult to predict, particularly in the short term, but have historically often moved in long cycles, Landy says.

Europe—and Germany in particular—has been boosting spending on defense and infrastructure, providing fiscal stimulus that could help to raise the continent’s economic growth rate. European banks, a top-performing group last year, have continued to deliver generally good results thanks to favorable interest rate dynamics, loan growth in certain areas, and cost-control efforts. In Japan, after years of corporate restructuring, companies are becoming more profitable and friendly to shareholders. Additionally, Landy notes that supply-demand imbalances have created potentially compelling opportunities abroad in certain specific industries, including aerospace aftermarket parts, semiconductor manufacturing and equipment, and power generation and transmission.