Breakout Capital

For most of the last 15 years, the US outperformed all other markets, lifted by the strong dollar and the supremacy of its big tech stocks. But this single factor obsession with America has already lasted longer than normal for a dominant theme in global markets, and its age is starting to show. In 2025, international markets outperformed the US by the widest margin since 2010, delivering returns twice as high, across many regions. Of the top 50 stock markets, 35 outperformed the US, from emerging regions to Europe and Japan.

International markets got a big lift from the dollar, which had finally started to weaken. We expect downward pressure on the dollar to continue, because the US has never been more dependent on foreign inflows to fund its mounting deficits and debt. And past dollar bear markets have lasted 6 to 7 years, with an average decline of 40%.

The world’s faith in America got a second lease on life around 2022 with the arrival of Artificial Intelligence (AI), but we don’t believe the AI investment opportunities are exclusive to the US anymore. Tech revolutions have always displaced incumbent firms, and while the leading incumbents are now all-American, the potential challengers are not. The American hyperscalers are pouring hundreds of billions into AI cap ex, and some of the biggest beneficiaries are already outside the US, including semiconductor makers and utilities in Asia and commodity producers in Latin America.

Change is afoot for the old regime, as investors look for opportunities in new countries and sectors. In per capita terms, the share of emerging markets growing faster than the US is expected to spike from less than half in the last five years to 90 percent in the next five. Corporate fundamentals are turning as well. After lagging the US for years, corporate earnings have been growing just as fast in international markets on average, and faster in the emerging ones.

Despite the recent shift, international markets are still under-owned and very cheap compared to the US, and even a partial return to balance would open enormous opportunities in the rest of the world.  Today the standard portfolio invests at most 8% in EM equities, which is roughly one half to one fifth of what the standard allocation models recommend. Our 10 rules of country selection guide us to at least four opportunity sets:

• Reform: First the pandemic induced austerity, then US tariffs forced a competitive response; the result is sweeping change across emerging markets, including deregulation, fiscal discipline, and free market reforms. The leaders of this movement include nations of Latin America and Asia, from Chile and Argentina to Vietnam, India and Malaysia.

• Manufacturing: Emerging markets are capitalizing on varied strengths across many manufacturing sectors, from high tech semiconductor exports out of Korea and Taiwan to electrical machinery out of Vietnam and Poland.

• Commodities: Commodity prices move in long cycles, and after a major downturn in the 2010s we have long expected the recovery, which is underway this decade. The exports that have our attention include precious metals out of South Africa, energy out of Saudi Arabia and UAE, and industrial metals out of Chile and Europe.

• Digitization: Emerging markets are strikingly overrepresented in the ranks of the world’s most digitized—and most rapidly digitizing—economies. Though the story of China’s advance as a cashless and digitized economy is well known, the trend extends across Asia into Latin America and Africa, and could have a dramatic impact on growth.

We see these trends unfolding in a new global macro regime, marked by elevated inflation and higher potential for fiscal shocks. In this environment, the standard 60-40 portfolio of stocks and bonds is ripe for disruption, and we believe a modified distribution with 60% in equities, 20% in bonds and 20% in more explicit inflation hedges, including commodities and alternatives (such as hedge funds) may be more appropriate in this environment. Our depth of experience in managing global assets makes Breakout Capital a valuable guide to investors seeking new opportunities, and more carefully balanced portfolios, in an era when the global markets have become obsessed with America.