Why Japan and UK Stocks Could Outperform US Markets in 2022

Last updated: October 14, 2026

If you have been loading up on US tech stocks, you might want to reconsider where your next dollar goes. While Wall Street has dominated for years, some analysts believe regional markets outside the United States are now better positioned for the period ahead.

According to investment research from Fidelity, the extraordinary run-up in US equities since early 2020 has left American stocks looking expensive relative to peers in other parts of the world. That does not mean abandoning US markets entirely, but it does suggest your portfolio could benefit from looking beyond your usual comfort zone.

• US stocks have surged roughly 120% above their March 2020 levels, driven by years of strong performance since the 2008 financial crisis
• The S&P 500 has significantly outpaced every other major regional market during this two-year period
• UK and Japanese markets currently trade at notable discounts compared to US valuations
• Jay Powell's reappointment as Federal Reserve chairman signals potential shifts in central bank policy
• Inflation concerns are prompting investors to seek protection beyond traditional equity holdings

Why the US Lead Might Be Waning

Here is the situation. American indexes have been the place to be, no question. But when everyone already holds a lot of US exposure, you have to ask whether the upside justifies adding more. The dominance has actually become the problem. If your portfolio is already heavy on American equities, further concentration increases risk without necessarily adding reward.

This is where the valuation argument becomes hard to ignore. US stocks trade at premiums that reflect years of outperformance. Meanwhile, other markets have sat through that rally without matching the same appreciation. When you strip away the momentum, the price tags look quite different.

The Case for Japan

Japan is one of those markets that most investors in the UK barely register. Data from the Investment Association shows Japan represents less than 3% of total assets under management in the UK, despite being one of the three largest stock markets globally. That disconnect is striking.

The investment case rests on several factors. Japanese equities are cheap compared to US counterparts. The Bank of Japan continues to maintain supportive monetary conditions. Corporate governance has improved, with more emphasis on dividends and share buybacks. The economy stands to benefit from a global recovery. And Japan holds leading positions in robotics, advanced manufacturing, and gaming sectors that could perform well as economic conditions normalize.

Say you run a tech-focused portfolio and most of your holdings are concentrated in US software names. Adding Japanese industrial and robotics exposure gives you different drivers of return. If US tech stalls, your Japanese positions might hold up better simply because they move to different rhythms.

Why the UK Deserves Another Look

The UK market has a reputation problem. Brexit uncertainty and political noise have made some investors skittish. But the London market has structural characteristics that could work well in the environment taking shape.

British equities are heavily weighted toward banks, energy companies, and traditional industrials. These are precisely the sectors that tend to benefit when economies reopen and interest rates rise. Bond yields moving higher, which many expect given inflation pressures, would normally support bank earnings. Commodity exposure through energy names provides another layer of inflation protection.

This is a market weighted for a recovery narrative, which is more aligned with where we might be heading than with the stay-at-home trade that powered US tech higher.

Our Analysis

The shift being described is not a call to dump everything and rotate wholesale. Rather, it is an argument for intentional diversification. When one region has dominated as long as the US has, reasonable portfolio construction suggests trimming that exposure and looking for value elsewhere.

The inflation angle matters here too. If prices remain elevated longer than expected, traditional bonds offer little protection. Equities in value-oriented markets like the UK could provide a middle ground, with pricing power from commodity exposure and potential rate benefits for financial stocks.

What works in Japan's favor is the combination of cheapness, improving shareholder returns, and exposure to secular growth themes in robotics and automation. The risks are real, though. Currency fluctuations, geopolitical uncertainty, and structural challenges in the Japanese economy could weigh on returns. These are not risk-free opportunities.

What to Watch Next

The coming months will test whether this regional rotation thesis holds. Watch for signals from central banks on interest rate paths, as higher rates would support the value-oriented positioning in UK and Japanese markets. Monitor corporate earnings for evidence that Japanese companies are actually delivering on shareholder-friendly reforms.

The bottom line is straightforward: US dominance does not last forever. Diversifying into cheaper regional markets with different economic drivers makes sense for portfolios that have grown top-heavy with American equities. Japan and the UK each offer distinct paths to that diversification, with Japan providing cheap valuation and tech-adjacent exposure while the UK offers value and cyclical recovery potential.

Key takeaways

• US stocks at elevated valuations suggest looking beyond Wall Street for better risk-adjusted returns
• Japan represents less than 3% of UK investment portfolios despite being one of the world's largest stock markets
• UK equities are positioned for a reopening and rising rate environment through banks and energy exposure
• Portfolio diversification into regional markets can reduce concentration risk from US-heavy holdings
• Both markets offer different economic drivers that could perform well if US tech momentum fades