Where global markets are rebalancing
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ClearBridge’s Pawel Wroblewski examines why changing fiscal priorities and relative valuations are altering where global investors are finding opportunity today
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For the past several years, the valuation gap between US and international equity markets has been widening steadily. US stocks have commanded premium multiples, attracted the majority of global capital, and consistently outperformed. But that dynamic has begun to shift. Over the past year, international markets have delivered materially stronger returns, outperforming the S&P 500 by a wide margin in dollar terms.
This change has not come out of nowhere. According to portfolio manager Pawel Wroblewski, based in New York on the Global Growth Equity investment team at ClearBridge Investments, a subsidiary of Franklin Templeton Investments, the divergence reflects a combination of starting valuations, currency movements, and shifting economic conditions rather than a sudden reversal in fundamentals. “International markets were coming from a very different place,” he says. “Valuations were lower, expectations were more modest, and that created room for relative performance once conditions began to change.”
While US equities returned roughly 17 percent, including dividends, international benchmarks delivered closer to 30 percent. That performance gap has prompted renewed attention to markets that had been largely overlooked during the long period of US dominance.
Franklin Resources, Inc. (NYSE:BEN) is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 150 countries. In Canada, the company’s subsidiary is Franklin Templeton Investments Corp., which operates as Franklin Templeton Canada. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions. Through its specialist investment managers, the company offers specialization on a global scale, bringing extensive capabilities in equity, fixed income, alternatives and multi-asset solutions. With more than 1,500 investment professionals, and offices in major financial markets around the world, the California-based company has over 75 years of investment experience and over US$1.6 trillion (over CAN$2.2 trillion) in assets under management as of November 30, 2025.
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“What’s changed is the willingness of governments to act. After years of relying on monetary policy, fiscal policy is now doing more of the heavy lifting. That has real implications for how capital is deployed and where growth shows up”
Pawel Wroblewski,
Franklin Templeton Investments
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Published January 26, 2026
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“The opportunity set is broader, but it also requires more discernment. The goal isn’t to chase what’s worked recently but to understand where durable growth is actually being built”
Pawel Wroblewski,
Franklin Templeton Investments
Policy shifts, and a changing backdrop Part of the explanation lies in valuation normalization. For years, US equities benefited from strong earnings growth, deep capital markets, and a perception of relative stability. International markets, by contrast, carried discounts tied to weaker growth, political uncertainty, and structural concerns. As conditions evolved, those discounts began to matter more.
Currency dynamics also played a role. A weaker US dollar supported returns outside the United States, amplifying gains for international investors. At the same time, political and fiscal uncertainty in the US introduced a new layer of risk that investors had not been pricing in previously.
Beyond currencies, the global policy environment has shifted in important ways. Governments across Europe and parts of Asia have moved toward more active fiscal policies,
particularly in areas tied to energy security, infrastructure, and domestic production. These initiatives are not short-term stimulus measures but longer-term investments aimed at strengthening economic resilience.
“What we’re seeing is a broader reassessment of priorities,” Wroblewski says. “After years of focusing almost exclusively on efficiency, there’s a recognition that resilience and self-sufficiency matter. That’s influencing how capital is allocated.”
This shift has had tangible effects across sectors. Industrial companies, defence suppliers, and energy-related businesses have benefited from increased spending commitments. In several regions, these trends are being reinforced by policy frameworks that support domestic investment rather than cross-border dependency.
A new phase for global policy and investment The shift underway in global markets is being shaped less by cyclical momentum and more by deliberate policy choices. Across regions, governments are reassessing long-standing assumptions about trade, energy security, and industrial capacity. For investors, this marks a transition from a period dominated by monetary stimulus to one increasingly defined by fiscal direction and strategic spending.
Wroblewski sees this shift as both structural and consequential. “What’s changed is the willingness of governments to act,” he says. “After years of relying on monetary policy, fiscal policy is now doing more of the heavy lifting. That has real implications for how capital is deployed and where growth shows up.”
In Europe, this has taken the form of expanded investment in energy security, infrastructure, and defence. Following the energy shock triggered by the war in Ukraine, governments have accelerated spending plans aimed at reducing external dependencies and strengthening domestic capacity. These efforts extend beyond short-term stimulus, reflecting a longer-term reassessment of economic resilience.¹
Japan offers another illustration of how policy and market structure are beginning to align. After decades of deflationary pressure, the country is experiencing sustained wage growth and a renewed focus on corporate governance. Reforms encouraging share buybacks, improved capital efficiency, and clearer accountability have begun to change investor perceptions. Japanese equities have responded accordingly, supported by a shift toward more disciplined capital allocation and a gradual normalization of monetary policy.²
China’s trajectory is more complex but equally significant. While the economy faces structural challenges, including property sector stress and demographic headwinds, policy attention has increasingly shifted toward technological self-sufficiency and higher value-added industries. Government support for advanced manufacturing, electric vehicles, and semiconductors reflects a strategic effort to move up the value chain rather than rely on volume-driven growth. Recent reporting suggests that these sectors are becoming an increasingly important driver of corporate earnings and export competitiveness.³
Rethinking growth in a more fragmented world One of the most important shifts taking place is how growth
itself is defined. In recent years, growth became synonymous with a narrow group of large technology companies, many of them based in the United States. That concentration delivered strong returns, but it also narrowed the opportunity set.
Today, growth is emerging from a wider range of sources. Infrastructure investment, energy transition, defence spending, and productivity-driven innovation are all contributing to earnings momentum across regions. Financials and industrials, long overlooked in global portfolios, have benefited from higher rates and increased capital expenditure. In parts of Asia and Europe, these sectors now represent some of the strongest balance sheets and cash flow profiles.
According to Wroblewski, this diversification matters. “Growth isn’t disappearing,” he says. “It’s becoming more distributed. That changes how you think about portfolio construction and risk.”
Rather than chasing a single theme, the environment calls for a broader assessment of where sustainable returns can be generated. That includes understanding how policy decisions, currency movements, and regional priorities intersect with company fundamentals.
A more nuanced opportunity set What is emerging is not a wholesale shift away from US markets, nor a simple rotation into international equities. Instead, the global investment landscape is becoming more differentiated. Returns are increasingly shaped by regional policy choices, sector-specific dynamics, and the ability of companies to adapt to a changing economic order.
For investors, this means re-examining long-held assumptions. The era of uniform market leadership appears to be giving way to a more complex environment, one where opportunities are dispersed and selectivity matters more than ever.
As Wroblewski puts it, “The opportunity set is broader, but it also requires more discernment. The goal isn’t to chase what’s worked recently but to understand where durable growth is actually being built.”
In that context, strategies such as the Franklin ClearBridge International Growth are designed to identify companies positioned to benefit from these longer-term shifts, while maintaining discipline around valuation and risk.
The current moment may be less about a dramatic turning point and more about a reset in how global markets function. The implications are still unfolding, but one thing is clear: the investment landscape is no longer defined by a single narrative, and that shift is creating new space for thoughtful, long-term strategies to take shape.
1. Financial Times, “Japanese stocks surge to year-end record,” 2. Reuters, “Japan's cabinet approves record $785 billion budget, vows to keep debt in check,” 3. Reuters, “China's finance ministry says fiscal policies will be more ‘proactive’ in 2026”
Important Legal Information
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell, or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.
The views expressed are those of the investment manager, and the comments, opinions, and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region, or market.
All investments involve risks, including possible loss of principal. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results.
International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
Commissions, trailing commissions, management fees, brokerage fees, and expenses may be associated with investments in mutual funds and ETFs. Please read the prospectus and fund fact/ETF facts document before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently. Past performance may not be repeated.
Franklin Templeton Canada is a business name used by Franklin Templeton Investments Corp.
International equities consistently outperformed in 2025 (USD, %)
40
30
20
10
0
-10
-20
1/1/2025
2/1/2025
3/1/2025
4/1/2025
5/1/2025
6/1/2025
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12/1/2025
United States, S&P, 500, Total Return [perf.%]
EAFE, MSCI, IMI [Large, Mid, and Small cap], Total return [perf.%]
Currency impact on equity total returns in 2025
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
32.03
21.61
EAFE, MSCI,IMI (Large, Mid, & Small cap), USD {perf. %}
EAFE, MSCI,IMI (Large, Mid, & Small Cap), Local Currency {perf. %}
Performance of S&P in 2025 in different currencies
20.00
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
17.88
12.35
9.76
3.93
S&P 500 USD
S&P 500 CAD
S&P 500 GPB
S&P 500 EUR