The quiet resurgence of international investing

After years of underperformance relative to U.S. markets, international equities are staging a strong comeback in 2025. Comparing year-to-date US dollar returns highlights the shift:

What’s fueling this outperformance? A combination of policy shifts, economic reforms, and currency dynamics. Here are the main drivers: 

• Europe’s fiscal push: Germany and other European nations are deploying substantial fiscal stimulus measures, with increased spending on domestic infrastructure and defense.
• Japan’s corporate reforms: structural reforms, improving macro conditions, and attractive valuations continue to support a constructive outlook for Japanese equities,
• China’s stabilization: while China still faces headwinds from a weak property sector, deflationary pressures, and slowing industrial growth, recent stimulus measures are showing early signs of stabilizing the economy.
• Dollar weakness: a softer U.S. dollar is amplifying foreign equity returns for U.S.-based investors. 

Despite the international indexes’ outperformance year to date, valuations outside the U.S. remain compelling—especially as global supply chains evolve and capital spending accelerates. International markets also offer exposure to sectors underrepresented in U.S. indexes. Here’s a look at the forward PE ratios of those same indexes above.

With improving fundamentals and discounted valuations, international stocks are potentially more than just a diversifier now. While maintaining an overweight to U.S. equities still makes sense given their leadership in innovation, earnings quality, and capital efficiency, the global opportunity set has clearly strengthened. 

Maverick Lin contributed to this article.