Global equity allocations shifted noticeably toward markets outside the United States in January as investors sought cheaper valuations and broader sector exposure, according to LSEG Lipper data. Funds that invest in equities ex-U.S. - including exchange-traded funds - recorded $15.4 billion of inflows for the month, the largest monthly amount in four-and-a-half years.
By contrast, U.S.-focused equity funds saw just $5.7 billion of inflows in January, the smallest monthly total in three months. The rotation continued into February, with ETFs that target non-U.S. markets attracting an additional $1.4 billion in the first week of the month, the data showed.
Market participants cited a mixture of valuation and macro factors as drivers of the flow. Global technology stocks have come under pressure amid concerns over rising costs tied to artificial intelligence investment. A recent selloff was linked in part to the launch of a new legal tool associated with Anthropic’s Claude large language model, which heightened scrutiny on the costs and risks in the sector.
Investors and strategists pointed to opportunities outside the U.S. as a result. Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, highlighted China as a market with growth and yield potential; he also flagged Japan’s forthcoming election as a potential catalyst, and said Europe could benefit from increased defence and fiscal spending.
Performance so far this year has reflected the shift. The MSCI World ex USA Index rose 6.4% year-to-date, outpacing the S&P 500, which was up 0.54%. These moves built on last year’s gains, when the MSCI World ex USA Index increased 29.2% in 2025 compared with a 16.39% advance for the S&P 500.
Analysts noted that currency and rate expectations were reinforcing the appeal of overseas markets. A weaker dollar and anticipated U.S. rate cuts would tend to improve returns on assets denominated in non-U.S. currencies, while also supporting a tilt toward markets with greater exposure to cyclical stocks - sectors that typically fare better when growth picks up, in contrast to the U.S. market’s heavier weighting in technology.
Differences in forward price-to-earnings multiples illustrate the valuation gap investors are evaluating. At the end of January, the MSCI United States Index traded at a 12-month forward P/E of 22.27, versus 18.98 for the MSCI World Index, 15.18 for the MSCI Europe Index, and 13.59 for the MSCI Emerging Markets Index.
“Valuations remain a supportive backdrop,” said Derek Izuel, chief investment officer at Shelton Capital Management. He added that if the prevailing rate and currency dynamics persist, the rotation away from U.S. concentration could prove to be more than a short-term trade.
UBS’s Haefele expressed a constructive view on global equities, forecasting roughly a 10% gain by year-end and advising that investors with concentrated U.S. positions should consider diversifying into other markets to capture potential upside.