Narratives and facts support non‑US stock markets

Markets are influenced by a constant interplay between short‑term narratives and the underlying fundamentals that drive long‑term outcomes. At times, these narratives harden into genuine structural tailwinds or headwinds that shape market returns over many years. In other cases, they prove temporary, fading as attention shifts and fundamentals reassert themselves.

Currently, markets are showing evidence of both an overreaction to narratives and, in some areas, a clear alignment between narrative and structural support. It’s in the latter where long-term investors could be rewarded. In the former, where emotion is running high, investors may want to be cautious.

Emotions play a role in the market’s AI reaction

The recent wild swings in certain stocks, sectors, and country stock indexes reflect investors grappling with how the terminal value of businesses may be disrupted, or even destroyed, by advances in AI.¹ Many software and technology names have been hit hard,² reportedly in response to stories about AI tools undermining business models and displacing knowledge workers. This isn’t to say these concerns lack merit, or that some conclusions won’t ultimately prove correct. We must recognize, instead, the inherent uncertainty in these narratives and resist treating them as firm forecasts.

It’s understandable that emotion plays a role. The pace of change is extraordinary and, for many, deeply personal. As knowledge workers (and one of us a parent of teenagers), we know that this is an emotional subject. Yet earnings data, and even analyst earnings expectations, haven’t meaningfully deteriorated. Last Wednesday, Nvidia closed out the fourth-quarter earnings season with strong results, reinforcing that demand for data centers, chips, and related infrastructure remains robust. Despite this, Nvidia shares fell the day after.³

Improving narratives and fundamentals for non-US stocks

As Economist John Maynard Keynes’ quote reminds us, “markets can stay irrational longer than you can stay solvent.” There’s little value in trying to be a hero. We have greater confidence today outside the US. Emerging markets, Japan, and even Europe stand out, in our view. In these regions, narratives have been improving, structural fundamentals have been strengthening, and, crucially, valuations have been less stretched and positioning far less crowded.⁴

Japanese stocks have continued to perform strongly.⁵ The near‑term narrative centers on increased policy support from a new government with a strong majority. More importantly, the structural case remains compelling. Corporate governance reforms and shareholder return, particularly higher returns on stocks,⁶ have improved since former Prime Minister Shinzo Abe launched his reform agenda.⁷ Both domestic and foreign investor participation have continued to rise.

Emerging markets have long carried a compelling growth narrative, albeit with higher volatility, in our view. Today, key structural forces, such as a weaker US dollar⁸ and improving corporate governance, have been aligning to provide additional support. Within emerging markets, performance leadership has been clear. Emerging market stocks continued to outperform last week, with Korea standing out.⁹ The Korean Stock Exchange Index (KOSPI) rose more than 75% in 2025 and has gained nearly another 50% in just the first two months of this year.¹⁰ Korea is now the ninth‑largest global stock market.¹¹

Korean stocks have been buoyed by the sustained boom in demand for semiconductors and memory. Currently, we see few obvious clouds on the horizon. Export growth remains strong,¹² while steady domestic inflation suggests the Bank of Korea can keep policy rates on hold for some time.

Markets are narrative‑driven. Our task is to identify where we have the greatest confidence that narratives and facts are converging. From that perspective, the story we’ve been telling for many months remains intact. We believe non‑US markets, including emerging markets, Japan, and Europe, have the potential to continue to reward investors.

How might the Iran story unfold?

With just two months behind us, 2026 is already providing many twists and turns. The US and Israel military strikes on Iran, which resulted in the death of Supreme Leader Ayatollah Ali Khamenei. How this story unfolds is highly unclear at this stage, but history suggests that such geopolitical shocks and twists might initially be negative for risk assets, including stocks. But in the medium term, staying invested may be the best course of action, in our view, as markets have tended to rebound after peaks in geopolitical risk. 

Important information

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All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

Artificial intelligence (AI) technology companies are sensitive to specific risks such as small markets, business cycle changes, economic growth, technological progress, obsolescence, and regulation. These companies may have limited products, markets, resources, or personnel, making their securities more volatile, especially for smaller start-ups. Rapid technological changes can adversely affect their results. AI companies often rely on patents, copyrights, trademarks, and trade secrets to protect their technology, but there's no guarantee these protections will be sufficient. Significant research and development (R&D) spending doesn’t ensure product or service success.

The Consumer Price Index (CPI) measures the change in consumer prices and is a commonly cited measure of inflation.

The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.

Gross domestic product (GDP) is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified time period.

Inflation is the rate at which the general price level for goods and services is increasing.

The Korea Composite Stock Price Index (KOSPI) is a market-capitalization-weighted benchmark index for the Korea Exchange (KRX), tracking all common stocks traded on its main board.

A policy rate is the rate used by central banks to implement or signal their monetary policy stance.

The MSCI All Country World Index (ACWI) captures large- and mid-cap representation across 23 developed markets (DM) and 24 emerging markets (EM) countries. With 2,515 constituents, the index covers approximately 85% of the global investable equity opportunity set.

The MSCI Emerging Markets Index captures large- and mid-cap representation in emerging market (EM) countries.

The Nikkei 225 Index is a price-weighted average of 225 top-rated Japanese companies listed in the first section of the Tokyo Stock Exchange.

Purchasing Managers’ Indexes (PMI) are based on monthly surveys of companies worldwide and gauge business conditions within the manufacturing and services sectors.

The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

The S&P 500® Index is an unmanaged index considered representative of the US stock market.

The S&P 500 Software Industry GICS Level 3 Index tracks large-cap US companies primarily engaged in software development, including Application Software and Systems Software sub-industries.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic, and political conditions.

Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers.

The opinions referenced above are those of the author as of March, 2, 2026. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.