No longer just betting on US stocks: Citibank says investors are now allocating non-US stocks with higher confidence.

The Citigroup Group Strategy Team stated that investors' willingness to diversify their stock holdings in 2026 will continue to drive capital flows, and is expected to push a global benchmark stock index up by 10%. The team pointed out in their report that the key drive of this trend is the increasing convergence of profits between US companies and those in other parts of the world. Led by Beata Manthey, the strategists believe that there is still room for improvement in earnings per share in major markets outside the US, through government spending in Europe, Japan's reflation policies, and the widespread adoption of artificial intelligence. "Investors currently show stronger confidence in international stocks, with a significantly higher bullish sentiment toward holdings in other parts of the world compared to the US, and overall risk appetite is more widespread than a year ago," the Citigroup team stated. Manthey and her team predict that the MSCI Global Index will rise to 1,360 points by the end of 2026, up by about 10% from last Friday's closing. The team emphasizes that diversification does not necessarily mean selling off US assets, as Citigroup also predicts that the S&P 500 Index will rise by 11% in 2026. The Citigroup team pointed out that while valuations of all major stock markets are above historical averages, US stock valuations are the most expensive, with a forward P/E ratio of 22, ranking in the 91st percentile in the past 25 years. Global stock market valuations are in the 90th percentile. The strategists stated that despite recent market discussions that "US exceptionalism" may come to an end, fund flow data show that the rotation so far has been moderate. Although Europe saw its first annual inflow since 2018 in 2025, the inflow only partially reversed the outflow by less than 10%. "In the context of changing corporate profit dynamics, the long-term fund flow structure still supports the logic of diversified allocation," they wrote. The team is currently overweight on emerging markets (excluding the UK) and European markets, neutral on the US and Japan, and underweight on the UK and Australia. Their favored global sectors include technology, financials, and healthcare, while they hold a low allocation view on the consumer sector.