Case for International Equities Strengthens
The prolonged zero-interest-rate environment that provided massive tailwinds for U.S. markets is shifting as central banks adjust policy and global interest rates normalize. Global capital costs are rebalancing, creating a compelling backdrop for investors to reevaluate international equities. This is particularly important as U.S. equities are becoming increasingly reliant on AI spending.
Key Takeaways
- Non-U.S. technology stocks are projected to achieve an average annual earnings growth of 58% through 2028, outpacing the 35% growth rate anticipated for U.S. technology firms.
- International stocks trade at 14x projected 2027 earnings compared to 17x for U.S. equities, offering lower valuation and higher dividend yields.
- The normalization of global capital costs and attractive valuation discounts make active exposure via international equity ETFs increasingly advantageous.
Shift in Market Concentration and AI Capex
The U.S. equity market has experienced extreme narrowing, with only one-third of S&P 500 components outperforming the broader benchmark this year. A significant portion of domestic momentum remains tied to heavy AI spending. Furthermore, U.S. hyperscalers are projected to allocate nearly all of their operating cash flow to infrastructure in 2026. This leads to increased corporate debt issuance and concentrated risk.
In contrast, non-U.S. tech companies are benefiting from shifting global supply chains without absorbing the massive debt loads associated with domestic AI buildouts. On an equal-weighted basis, international stocks trade at approximately 14 times projected 2027 earnings, compared to 17 times for U.S. equities, offering a distinct valuation gap alongside higher dividend yields.
Advisor Education on Navigating International Equities
To help evaluate where international equities fit in client portfolios, advisors can tune into a webcast on August 20 at 2 PM ET. Josh Rubin, client portfolio manager at Thornburg Investment Management, and Kirsten Chang, senior industry analyst at VettaFi, will discuss strategies for capturing non-U.S. growth while managing concentration risk.
For investors seeking targeted international exposure, the Thornburg International Equity ETF (TXUE) provides broad exposure to international equities, while the Thornburg International Growth Fund ETF (TXUG) targets non-U.S. growth drivers.
Investors can also access Thornburg’s lineup across asset classes via the Thornburg Premium Income Builder ETF (THOR), the Thornburg Multi Sector Bond ETF (TMB), the Thornburg Core Plus Bond ETF (TPLS), and the Thornburg American Opportunities Fund (TAOZ).
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