Global investors are advised to reduce US equities exposure as emerging market stocks are set to outperform developed nations due to the weakening US dollar, says Cambridge Associates. The dollar is 29% above its median real valuation, with expectations of further decline in 2026, starting a multi-year bear market.

International stocks have benefitted from the weaker US dollar, with global non-US equities outperforming US equities in 2025. Cambridge expects this trend to continue and recommends overweighting in global non-US equities in 2026. Latin America, with a 37% year-to-date return on equities, offers further outperformance potential.

Cambridge warns of US equities’ vulnerability due to heavy reliance on tech stocks, particularly in artificial intelligence. The exposure to a narrow slate of sectoral drivers increases the risk of a weaker dollar, posing a threat if the AI theme fades. The price-to-cash-earnings ratio for the MSCI USA index is 2.19 times higher than the MSCI Developed Markets index (ex-US).

Fidelity echoes Cambridge’s views, foreseeing Asian market growth in 2026 due to the weaker dollar and a lasting AI investment cycle. Matthew Quaife, global head of multi-asset investment management at Fidelity International, believes the dollar will weaken through 2026, creating a favourable environment for Asian markets. International investors are returning to China, with the stable macro backdrop and AI cycle drawing global attention.

The Trump administration aims for lower interest rates and a weaker US dollar to narrow the trade deficit and revive US industry. As the administration prepares to appoint a new Federal Reserve chair, the focus remains on achieving these goals. The outlook for 2026 includes a stable yet weakening dollar, aligning with the administration’s objectives.

Read more at Yahoo Finance: Emerging markets set to outperform US stocks as dollar weakness continues, Cambridge says