The International Rebalance

Morgan Stanley

Jitania Kandhari

Research

7 Pages

Morgan Stanley highlights the entrenched home‑country bias among U.S. investors, with nearly 15 years of U.S. equity dominance masking broader opportunities abroad. Despite foreign holdings in U.S. equities reaching $16.5 trillion, portfolios remain vulnerable to overconcentration and currency risk. Historical market cycles—where international equities outperformed the U.S. by about 4.9% CAGR—signal a compelling case for strategic rebalancing.

Key Takeaways

Deep home bias: U.S. dominance reinforced by behavioral and institutional barriers, even as foreign investors hold $16.5 trillion of U.S. equities.
Historical rotation: In four of the past eight post‑WWII decades, international equities beat the U.S. by a median 4.9% CAGR.
Diversification imperative: Rebalancing toward international equities addresses valuation extremes and mitigates unhedged dollar exposure.
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