Investors worldwide are increasingly allocating capital outside the United States as elevated U.S. valuations and improving earnings momentum elsewhere make international equities more attractive, according to Citigroup strategist Beata Manthey.
In Citi’s latest global equity outlook, Manthey said the bank expects “diversification into international equities will continue in 26E,” noting that Citi maintains Overweight positions on emerging markets and Europe excluding the U.K.
The bank projects roughly “c10% upside for the MSCI AC World to year-end,” underpinned by a “soft landing” macro environment, supportive earnings revisions and strengthening tailwinds linked to artificial intelligence.
According to Citi, bottom-up consensus forecasts indicate that global earnings growth is set to accelerate to “+14% this year (vs. +11% in 25E), with all major regions/sectors likely to contribute positively.”
Manthey highlighted that U.S. equities remain the most expensive major market, trading at around 22 times forward earnings. However, she added that valuations are stretched more broadly, with all major regions now trading above their long-term averages and global equities sitting at the “90th percentile PE multiple vs. history.”
This valuation backdrop leaves “little room for error should companies fail to deliver on earnings forecasts,” the note cautioned.
Despite these risks, Citi sees the outlook for 2026 as constructive, with performance leadership expected to broaden across both regions and market capitalisations.
Europe excluding the U.K. is forecast to deliver the fastest earnings acceleration, improving from “+1% in 25E to +10% in 26E,” while earnings growth in both the United States and emerging markets is expected to remain in double-digit territory.
From a sector perspective, Citi’s global preferences include technology, financials and health care, with health care recently upgraded to Overweight status. Consumer-related sectors, by contrast, continue to be underweighted.
Overall, the bank reiterated its view that future equity gains are more likely to be driven by earnings growth rather than further expansion in valuation multiples.