Weekly Buzz: Why diversification beyond the US matters

For years, the playbook for investors looked simple: bet on America. Investing in the world's largest economy is still a good call – we covered what some of the biggest investment houses expect for the US for the rest of 2026 last week. The economic forces now building outside the US, however, make a strong case as well.

What’s going on here?

Stocks outside the US beat American ones in 2025, and they are still ahead in 2026. FTSE All-World excluding-US Index returned 33% last year, while the S&P Emerging Broad Markets Index rose 24%, against the S&P 500's 18%. Worth noting: much of that emerging market gain came from memory chip stocks and the AI trade in South Korea and Taiwan, and whether this momentum continues is an open question.

According to Fidelity, foreign large-cap stocks still trade at roughly a 30% discount to US stocks on a forward P/E basis, and more than 50% on a price-to-book basis. That gap is notable, but cheap markets can stay cheap. Valuation alone isn't a reliable reason to shift a long-term portfolio.

The appeal lies in the drivers, not the discounts. In Europe, defence and infrastructure spending has picked up, led by Germany loosening its long-held borrowing limits. Japan, meanwhile, is seeing results from a decade of corporate governance reform. Real wage growth has returned too, and foreign money has flowed back in, with overseas investors buying a net ¥5.4 trillion of Japanese shares in 2025, the largest annual inflow since 2013.

(For more on the investing case for countries globally, see our 2026 Macro Outlook.)

What’s the takeaway?

If your portfolio leans heavily on the S&P 500 alone, the mix underneath is likely less diversified than you think. The index holds 500 companies, but not evenly. The ten largest now make up almost 40% of the index, up from around 20% a decade ago, and the technology sector alone accounts for about a third of the index.

The US still belongs at the core of most portfolios. The forces driving Europe, Japan, and beyond simply add a second source of growth. Over the long run, owning multiple sources of growth is how a portfolio holds up across different scenarios.

(If you want an easy way of investing in countries across the world, see Flexible Portfolios.)

In Other News: Gold is now the biggest central bank asset

Gold has edged past US government bonds to become the largest single reserve asset held by the world's central banks. It now makes up 27% of global central bank reserves, up from 20% a year earlier, according to a new report from the European Central Bank (ECB). By contrast, the share of US Treasuries fell to 22% from 25%.

While US Treasuries have held the title of the world's go-to safe asset for decades, two forces have moved gold ahead. The first is appetite. Central banks have bought heavily since 2022, led by China, Poland, Turkey, and India, though the pace eased to roughly 850 tonnes in 2025 after three straight years of buying more than 1,000 tonnes annually.

The second force is price. Central bank reserves are measured at market value. So as gold prices roughly doubled over the two years to end-2025, the bullion in central bank vaults became worth far more. At 2023 prices, the ECB notes, US Treasuries would still be ahead.

To be clear, dollar assets in aggregate still make up the largest single slice of reserves at 42%. Central banks are probably not moving away from the dollar so much as choosing not to rely on it as much. It's the same principle of diversification that benefits any portfolio.

(For a simple method of adding exposure to gold to your portfolio, see Flexible Portfolios.)

These articles were written in collaboration with Finimize.