In 2025, international equity markets have defied expectations and delivered stellar results that demand attention from every investor. As global economies rebalance, opportunities to capture value outside the U.S. have never been more compelling.
From regional breakouts to structural shifts, this article explores how to harness these trends and build a resilient portfolio.
Market Performance in 2025
International equities have delivered dramatic returns varying by region this year. Mexico and Brazil have each surged around 30%, rebounding strongly from a challenging 2024. Asia has also impressed, with major players like Tencent, Alibaba, and Xiaomi powering China’s market up roughly 25%, while South Korea’s benchmark climbed 43%.
On a broader scale, the MSCI ACWI ex-US Index has attained twice the return of the S&P 500 through August, and with lower volatility than U.S. stocks. Over the trailing year, non-U.S. equities outpaced the S&P 500 by 160 basis points, underscoring the momentum sweeping global markets.
Valuation Advantages
International equities began 2025 at substantial discounts compared to the U.S. Historical price-to-earnings and price-to-book metrics show discounts near 30%, offering less room to fall in downturns and upside as global growth resumes.
The MSCI International Developed Index remains well below its 2007 peaks, reflecting years of underperformance. Yet consensus forecasts by Morningstar at the start of 2025 saw international stocks primed to outperform over the next decade, even after this year’s impressive gains.
Sector and Geographic Composition
Unlike the tech-dominated S&P 500, international markets feature heavier exposure to traditional value sectors. The MSCI International Developed Index allocates:
- Financials ~18%
- Industrials ~16%
- Technology ~8%
With companies spanning 194 countries and representing over 84% of global GDP, international equities cover more than 6,500 listed stocks—double U.S. listings—providing deep diversification across sectors and regions.
Currency Dynamics
A key driver of 2025’s outperformance has been the weakening of the U.S. dollar against the euro, yen, and other major currencies. A softer dollar enhances returns for U.S. investors and eases debt pressures in emerging markets. This trend fuels capital flows into global equities, creating a virtuous cycle of appreciation.
- Increased purchasing power abroad
- Lower financing costs for emerging economies
- Higher demand for international stocks
Macro Outlook and Regime Change
The era of near-zero interest rates and persistent low inflation appears to be ending. As central banks maintain higher rates to combat inflation, structural macroeconomic shifts favor sectors like financials, materials, and energy over pure growth themes.
Europe’s leading indicators have hit record highs, and free trade agreements—from the U.K.–India deal to China’s pacts with Vietnam and Malaysia—are fueling new growth corridors outside U.S. markets.
Historical Cyclicality
Market leadership rotates over decades. In the 1970s and ’80s, international exposure rewarded investors handsomely. After the internet bubble burst and the 2007 crisis, emerging markets and value stocks outpaced U.S. growth names. History suggests the current U.S. concentration in five mega-caps may eventually give way to broader global participation.
Risk Management and Investment Approach
To navigate volatility and capture upside, focus on high-quality businesses across international developed markets. Emphasize companies with strong balance sheets, consistent cash flows, and dominant market positions.
- Diversify across regions to smooth returns
- Prefer developed over emerging markets for stability
- Maintain quality to compound returns through cycles
Forward-Looking Strategies
While markets face risks—from trade tensions to geopolitical conflicts—the case for international equities rests on compelling fundamentals. Cheap valuations, currency tailwinds, and broad sector leadership all point to continued opportunity.
Investors should remain selective, concentrating on sectors and regions with clear macro support and strong corporate profitability. By unlocking the value hidden outside U.S. borders, portfolios can achieve diversified growth and enhanced resilience.
