1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 132
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
International Equities
Ace Mirali
Senior Manager, Equities
Eduardo Lopez Ponce
Senior Manager, Equities
Cristobal Zapata
Senior Manager, Equities
Key conclusions
•
2026 may represent an inflection point, creating opportunities in international markets.
•
Within developed markets, policy execution appears as critical as management
execution.
•
Within EMs, structural themes support exposure to Chinese and Indian equities, while
Brazil, Mexico, and Vietnam remain well-positioned to benefit from supply-chain
reshoring.
Developed Markets
2026 may mark a turning point for international equities, creating an opportunity to increase
exposure to international markets, particularly Europe. The E.U., especially Germany, stands to
gain from rising defense and infrastructure spending. This defense infrastructure is funded
primarily through public investment, in contrast to the greater reliance on private debt in the U.S.
and is likely to produce more immediate economic benefits (relative to prolonged capex buildouts
with uncertain returns on capital). As a result, we believe the European market, with its reliance on
fiscal expansion, may prove to be better positioned. This advantage should be most evident in AIagnostic sectors like Financials (where sustained public investment could keep rates higher for
longer, given long-term program commitments and persistent inflation), Healthcare, and Utilities.
A market reliant on fiscal expansion, however, implies that policy execution for certain segments
of the market may be as critical as company-specific fundamental execution. For other parts of
the market, security selection remains as important as ever and is especially true for sectors that
are not direct beneficiaries of AI-driven growth, as concerns over inflation-adjusted purchasing
power could intensify competition for a shrinking consumer wallet. We believe our focus on
sustainable advantages, backed by high entry barriers, and evidenced by consistently strong ROIC,
play a crucial role in security selection within this environment. When paired with structural
growth, these attributes should support above-average long-term returns.
Our outlook for the U.K. for 2026 is largely more of the same, with few clear catalysts to drive
renewed momentum. Moreover, fiscal constraints are likely to keep tax rates elevated. Given this
context, despite attractive relative valuations, the absence of meaningful near-term catalysts
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