LONDON - For equity investors seeking a smooth ride in 2026, increasing exposure beyond artificial intelligence euphoria could be a good New Year’s resolution - and opportunities may be hiding in plain sight.

Investors have ‍reason to be wary. U.S. equity valuations currently ‍look stretched, with the Shiller price-earnings ratio for the S&P 500 above 40 – very close to levels seen during the 1990s dot-com bubble.

And markets have become highly concentrated. The five biggest U.S. ​technology companies - Nvidia, Apple , Alphabet, Microsoft and Amazon - now have a collective value that exceeds the Euro STOXX 50, as well as the stock markets of Britain, India, Japan and Canada, according to analysis from Goldman Sachs. Doubts have thus begun ⁠to creep in about this year’s AI-fuelled rally, with volatility, as measured by the CBOE Volatility Index spiking over the past few months.

Yet plenty of regions and sectors outside of U.S. tech generated steady returns in 2025 - and we think ⁠many ‌are capable of doing so once again next year.

BEYOND THE U.S.

Regionally, the equity story of 2025 was not the U.S.

The world’s biggest market was all the way down in 20th place for year-to-date performance by country at the start of December, based on local-currency returns. South Korea and Spain led the pack.

And one certainly didn’t need to stay in the U.S. to ⁠get double-digit returns. According to Goldman Sachs, 84% of all country stock markets are up more than 10% in the past 12 months.

There are many reasons why international equities could continue to outperform next year. European stocks may benefit from a pickup in economic activity. Loan growth is already rising, and the region’s composite purchasing managers’ index (PMI) is well above 50, signalling economic expansion. This cyclical expansion could be turbocharged in 2026 by German fiscal stimulus and broader European defence spending.

All this should support cyclical European companies, such as makers of trucks and mining equipment, particularly if the euro/dollar exchange rate stabilizes next year. In Japan, a combination of healthy inflation and corporate transformation – ⁠with many companies seeking to streamline and focus on their core ​businesses – could continue to drive higher profitability and shareholder returns in 2026. On top of that, the government’s lower house just passed a $117 billion supplementary budget to fund massive fiscal stimulus, which should support the broader economy. Japan is the only major economy where we expect ‍interest rates to rise in 2026, but that should give banks a boost and is unlikely to be a significant drag on growth.

In emerging markets, earnings may be supported by a weaker dollar, lower global interest rates and a flow of money and investment as global supply chains realign ​to adapt to trade tensions and geopolitical friction. Finally, my home market of the UK – which has outperformed the U.S. this year without the help of any high-profile AI winners – has the potential to offer steady, stable returns, especially with valuations currently among the lowest in the developed world. The challenge for investors is to identify quality British companies that can overcome the negative sentiment still hanging over the country.

BEYOND TECH

It's a similar story for sectors. It has not all been about U.S. tech.

European banks have outperformed the “Magnificent Seven” by 40 percentage points, in local-currency terms, over the last five years. Yet there is no discussion of a bubble here. Valuations remain below long-term averages, and our analysis shows that European banks as a group will return around 24% of market cap to shareholders over the next three years via dividends and buybacks.

Healthcare stocks have had less success recently, trailing the market over the past few years. Yet this traditionally defensive sector - where demand is largely independent of economic cycles - has historically demonstrated strong and consistent earnings growth, even during times of market stress.

Healthcare stocks now trade at a 28% discount to global equities - a level seen only twice in the past 30 years, according to our analysis. On both occasions, the sector returned more than 20% over the following 12 months.

Even within the AI theme, there are ways to gain exposure without ⁠paying scary prices. AI power demand has highlighted the need for investment in clean energy and grid infrastructure, including the utility companies that ‌power data centers.

Importantly, both clean energy stocks and listed infrastructure companies are trading at a discount to the overall market. AI doesn’t have to be expensive. The AI boom could, of course, pick up yet more steam in 2026 – especially if returns from efficiency gains start to become more apparent. But high valuations may keep markets on edge regardless. Investors wanting less exposure to the risk have plenty of options.

(The opinions expressed here are those of the author, Helen Jewell, ‌International CIO, Fundamental Equities, at ⁠BlackRock. This column is for educational purposes only and should not be construed as investment advice.)

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(Writing by Helen Jewell; Editing by Anna Szymanski)