Investing.com -- Global investors are increasingly looking beyond the United States for equity exposure as high valuations and broadening earnings momentum drive interest in international markets, according to Citi analyst Beata Manthey.
In the bank's latest global equity outlook, Manthey wrote that Citi expects "diversification into international equities will continue in 26E," adding that the firm maintains Overweight ratings on emerging markets and Europe excluding the U.K.
Citi forecasts about "c10% upside for the MSCI AC World to year-end," supported by a "soft landing" macro backdrop, solid earnings revisions and expanding AI-related tailwinds.
Bottom-up consensus is said to point to global earnings growth accelerating to "+14% this year (vs. +11% in 25E), with all major regions/sectors likely to contribute positively," Citi stated.
While U.S. equities remain the most expensive, trading at 22x forward earnings, Manthey noted that all major markets now trade above long-term valuation averages, with global equities sitting at the "90th percentile PE multiple vs. history."
That leaves "little room for error should companies fail to deliver on earnings forecasts," the note warned.
Still, Citi believes 2026's setup appears favourable, with outperformance broadening across regions and market caps.
Europe ex-U.K. is expected to see the sharpest earnings acceleration, rising from "+1% in 25E to +10% in 26E," while both the U.S. and emerging markets are projected to maintain double-digit growth.
Citi's preferred global sectors are technology, financials and health care, now upgraded to Overweight, while consumer sectors remain underweighted.
The bank continues to expect gains to be driven by earnings rather than further valuation expansion.
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