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        6 min read
        Krzysztof Janiga, CFA
        Senior Equity ETF Strategist

        Global equities: the World is not enough?

        Global equity leadership is broadening and deepening across regions, market sizes, and styles. Globally focused investors should ask if they have the right tools to capture these multiple worlds of opportunity.

        Global equities have enjoyed a positive but volatile start to the year. The backdrop for risky assets remains broadly supportive

        • Global growth is re-accelerating, supported by AI-driven productivity gains
        • Inflation remains in check
        • Monetary policies are becoming increasingly stimulative.

        With that in mind, geopolitical concerns need to be monitored as they represent a significant risk. Further to that, valuations are potentially an upside-limiting headwind, but long-run earnings growth may trump valuation concerns.

        As rotation gains momentum, investors may lean towards comprehensive, diversified global exposures such as the MSCI ACWI IMI Index, which gives investors exposure to large- mid- and small cap- companies across developed and emerging markets.

        Broadening equity market leadership

        Equity performance has broadened—from US mega-cap dominance in 2023 and 2024 through a European and EM renaissance in 2025, and now Japan, value, and small-cap outperformance in early 2026.1 A comprehensive global equity exposure may enable investors to capture upside potential regardless of which region or market segment is leading.

        Global equities have significantly outperformed bonds and commodities over the past 10 years, despite COVID, inflation, geopolitics and trade-related uncertainty (Figure 1). These all created periodic drawdowns, but patient, long-term investors have been rewarded.

        Supportive macro backdrop

        The global environment for risk assets remains constructive, despite trade and geopolitical concern, albeit the latter factor remains a potential headwind. State Street Investment Management economists expect global growth to reach 2.9%. Inflation, for the time being, remains moderate. Monetary concerns have declined, and many regions are expected to deploy fiscal easing.

        In the US, the One Big Beautiful Bill Act, and ongoing deregulation, encourage private investment. Germany’s public investments in rearmament and infrastructure are likely to support GDP growth. Japan’s government now has a powerful electoral mandate to deliver an expansionary fiscal agenda. China is likely to continue its attempts to boost consumption. The economy remains reliant on exports but fiscal spending may deliver moderating growth. Although excessive fiscal spending could become a long-term risk, on a relative basis it benefits equities more than fixed income.

        Inflation remains relatively contained, which should allow the Federal Reserve and the Bank of England to reduce interest rates. Some central banks remain cautious but rates in both continental Europe and in Japan are already relatively low. 

        Earnings growth mitigates valuation concerns

        After a three-year rally, equities are trading at elevated multiples, with the MSCI ACWI IMI 12-month forward price-to-earnings (P/E) ratio at 18.6x. This is 12% above the 10-year average. Although elevated multiples leave global equities vulnerable to some short-term negative movement, earnings growth historically been a bigger driver of returns than multiples expansion.

        MSCI ACWI IMI earnings per share is expected to grow by 16.6% in 2026 and 14.3% in 2027.2 We think robust economic growth, moderate inflation and AI-related tailwinds make these estimates achievable, provided that geopolitical headwinds do not disrupt the global economy.

        Why not rotate away from US?

        Rotation is apparent across regions, factors and sectors. US tech giant results have tended to disappoint of late. In this environment, drawing down US exposure may tempt European investors. But the US retains an economic growth advantage, which benefits domestically exposed companies. US artificial intelligence (AI) hyperscalers remain a global earnings growth driver. AI is creating winners and losers and sparking volatility across industries, but if productivity gains are substantial, AI is likely to be a net tailwind for global equities in the long run.

        Neglecting US equities could be costly for long-term investors, even as tactical opportunities emerge in other market segments. 

        The World is not enough?

        Investors should not neglect the US, but if rotation gains momentum, they should avoid overlooking EM and small caps. Over the past decade, the MSCI World Index was usually sufficient, as global market performance was concentrated around US mega caps, and EM were a source of concern, not optimism. Since the EM renaissance from the start of 2025, the MSCI ACWI Index, which includes large and mid-cap companies from both developed and emerging markets, may be a default allocation for globally focused investors. Investors seeking the most comprehensive exposure may pick the MSCI ACWI IMI Index, which extends exposure to thousands of small-cap companies. 

        Figure 5: Global equity indices market-cap comparison

        Mind the currency gap

        Over the last year global equity returns expressed in US-dollar terms are solid. But the experience for unhedged European investors has been different—European currency appreciation against the dollar has often diluted returns. As the US represents 64% of the MSCI ACWI Index and as much as 72% of the MSCI World Index,3 European investors might consider currency-hedged exposures.  

        How to gain exposure to equity worlds:

        Global developed large- and mid-cap equities

        Global developed and emerging large- and mid-cap equities

        Global developed and emerging large-, mid- and small-cap equities

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