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Mind on the Market Chart of the Week Global equity correlations have decreased

08/01/09 03/01/10 10/01/10 05/01/11 12/01/11 07/01/12 02/01/13 09/01/13 04/01/14 11/01/14 06/01/15 01/01/16 08/01/16 03/01/17 10/01/17 05/01/18 12/01/18 07/01/19 02/01/20 09/01/20 04/01/21 11/01/21 06/01/22 01/01/23 08/01/23 03/01/24 10/01/24 05/01/25 12/01/25 07/01/26

Source: FactSet, MSCI. 36-month rolling correlations calculated using monthly returns data in LC for MSCI Europe, MSCI Japan, MSCI China, MSCI EM, and MSCI USA as of August 31, 2026.

While global equity markets still share a common equity beta, their return paths have become less synchronized. That makes international exposure increasingly useful as a source of differentiated outcomes, an improvement from previous years.

Contact Ginger Perry Dane Smith Investment Strategist Head of Investment Strategy & Research – North America

MSCI ACWI ex US Correlation between US Correlation between US Cumulative Total Return and Japan: 2009 vs 2026 and Europe: 2009 vs 2026 in USD

217% 0.82 vs 0.93 vs Source: FactSet, using monthly total returns data in USD 8/31/2011 – 8/31/ Source: FactSet, MSCI as of Source: FactSet, MSCI as of 8/31/2026. 36-month rolling 8/31/2026. 36-month rolling correlations calculated using correlations calculated using monthly monthly returns data in LC for MSCI returns data in LC for MSCI Europe Japan and MSCI USA. and MSCI USA.

The international diversification opportunity set is changing

International markets have not escaped the global forces shaping equities, such as AI (which we’ve previously written about in AI leaders reshape the EM investment story | State Street), inflation and monetary policy. Yet, these common themes have not produced uniform market behavior globally. Since 2020, rolling correlations between US equities and several major international markets have steadily declined. China is the clearest outlier, reflecting a return path increasingly shaped by domestic policy, property stress and its own economic cycle. While correlations remain broadly positive, the decline over time is meaningful. At the same time, the US has become an increasingly dominant share of global equity benchmarks, rising from 53% of the MSCI ACWI Index a decade ago to 63% today (FactSet, as of 9/1/2026). As a result, many investors have become more concentrated in US equities.

While correlations measure co-movement, tracking error measures the variability of return differences relative to the US market. In this context, higher tracking error indicates larger variability in performance from US returns, illustrating distinct return experiences over time.