International Markets Surge Past U.S. Equities in 2026

In 2026, international markets have significantly outpaced U.S. equities, with several exchange-traded funds (ETFs) linked to Asia and emerging markets delivering impressive gains. The iShares MSCI South Korea ETF (EWY) has surged over 97% year-to-date, while the iShares MSCI Taiwan ETF (EWT) has risen about 83%. The WisdomTree Japan Hedged Equity Fund (DXJ) has gained 27%, and the iShares Core MSCI Emerging Markets ETF (IEMG) has climbed 23.5%. In contrast, U.S. ETFs like SPY, QQQ, and DIA have posted gains of 13.75%, 22.44%, and 7.52%, respectively.

The strong performance of Asian and emerging markets is driven by several factors, including an artificial intelligence (AI) boom, varied macroeconomic policies, and a volatile foreign exchange market. In South Korea, the AI-driven High Bandwidth Memory boom has boosted shares of Samsung and SK Hynix, while corporate-governance reforms have also contributed to market gains. Taiwan's semiconductor leader, Taiwan Semiconductor Manufacturing Company (TSMC), has seen record revenues amid the AI boom, significantly boosting the market. Japan's corporate governance reforms, rising buybacks, and dividends have also driven shares higher, with the DXJ's yen hedge adding momentum.

The U.S. dollar, which had a weak start to the year, has recovered slightly but is expected to weaken again in the coming months. The International Monetary Fund (IMF) noted that historical tailwinds for U.S. asset returns are fading amid a weakening dollar, a ballooning federal deficit, persistent inflation, and quantitative tightening. Experts forecast that the dollar will give up most of its recent gains over the coming year, making emerging markets and developing economies more attractive. A Reuters poll indicated that FX strategists remain bearish on the dollar in the long term.

While international equities currently offer more diversified returns than U.S. equities, experts do not recommend a sudden rush to exit U.S. markets. The IMF highlighted that just seven companies have accounted for 55% of total S&P 500 returns in the last three years, indicating concentration risk. However, diversification remains key, as macroeconomic drivers and local experiences of global phenomena create dispersed outcomes across countries. The AI boom continues to be a shared catalyst across many markets, allowing investors to broaden their geographic exposures without losing access to structural growth trends.