Foreign equity markets, especially emerging markets, have markedly lagged the S&P 500 in recent years. Yet there remain very good reasons to remain diversified overseas.

As the chart below indicates, U.S. stocks constitute a disproportionate amount of the worlds stock market capitalization relative to the size of the economy. Conversely, emerging market stock markets are very modestly sized relative to the economic importance of these regions.

Investors with very long time horizons should expect a gradual convergence over time, with emerging markets becoming a larger percentage of global stock markets. However, this dynamic will likely unfold gradually over decades, which means investors will require patience if they wish to benefit fully from this trend.