Erratic policy decisions, bubbling geopolitical tensions and concerns about the Federal Reserve’s independence have left some investors pivoting away from U.S. assets over the past year — and JPMorgan is among them. In a wide-ranging Monday note, equity strategists at the investment bank said they remained long emerging markets versus developed markets, and that within the latter cohort they “prefer international over the U.S.” Emerging markets Last year, emerging markets equities largely outperformed Wall Street’s major averages, led by gains in Latin America and parts of Africa. JPMorgan’s team noted that this had continued into the new year, with emerging-market equities outperforming DM by 10% in dollar terms based on their respective MSCI indexes. “Strong inflows into EM equities have underpinned the region’s robust performance,” they said. “EM equity net inflows reached $29.2 billion in 2025 — the highest annual inflows since 2021. Year-to-date, inflows have already totaled $55.5 billion, nearly double the full-year 2025 figure.” Read more From ‘Trump dump’ to ‘Hedge America’: Global investors still hesitant to go all-in on the U.S. As the TACO trade goes viral, another is gaining traction: ‘Anywhere But The USA’ As ‘Sell America’ trade volatility rages on, some of the biggest changes may be in your bonds Despite those inflows, the analysts said emerging markets are “still significantly underowned in the average portfolio.” At 13 times 12-month forward price-to-earnings ratios, emerging-market equities are still trading at a 33% discount relative to domestic market stocks, they added. “EM assets continue to benefit from widespread monetary easing across most EM central banks. Dollar weakness provides additional support,” JPMorgan’s team said. Japan and Europe JPMorgan’s strategists said they expected the outperformance of Japanese and European equities to continue versus U.S. equities. They said Japanese equities “should benefit from the expansionary fiscal policies” under Prime Minister Sanae Takaichi, and added that Eurozone stocks “offer compelling relative valuations, light positioning and stand to gain from increased fiscal spending.” Japan’s benchmark Nikkei 225 has been on a record-smashing spree this year, up almost 13% year-to-date. The rally — driven by the so-called “Takaichi trade,” which took hold following her historic landslide election victory earlier this month — has put the index on course for its fourth consecutive year of double-digit gains. Last year, the pan-European Stoxx 600 jumped 16.7%. Germany’s DAX index added 23% over the course of the year, fueled by optimism over its plans for a massive fiscal stimulus package that paved the way for a defense splurge. London’s FTSE 100 , which gained 21.5% last year, was another regional outperformer, while Spain’s IBEX 35 and Italy’s FTSE MIB also trailed ahead of their U.S. counterparts on respective annual gains of 49.3% and 31.5%. JPMorgan’s note said that European equities remained attractive because Eurozone stocks were still trading cheap versus the U.S., even after the region’s strong performance in 2025. “The region’s earnings are also expected to accelerate in 2026, after a period of underperformance,” they said. “This is underpinned by stronger operating leverage, diminished FX headwinds, reduced trade uncertainty, and a likely improvement in China activity.” Banking beats defense One of the major drivers of optimism in Europe last year was the defense bull run sparked by commitments from leaders , along with the NATO military alliance , to ramp up spending on security. Last year, the Stoxx Europe Aerospace and Defense index soared 56.5%, with some of the continent’s defense stocks more than doubling in value. JPMorgan’s analysts said Monday, however, that they were setting their sights elsewhere this year, following two years of bullishness on European defense. “Following its exceptional outperformance, we decided to take profits,” its strategists wrote. “The group has been struggling to make new relative gains for some time now … and it might not deliver outsized gains anymore, in our view. Out of last year’s standout outperformers, we would be more inclined to side with Banks than with Defense for 2026, as Banks valuations still appear attractive.” Europe’s banking sector boomed in 2025, with the Stoxx Banks index surging 80.3% thanks to improved profitability and a flurry of M & A interest.