Miss foreign stock run in 2025? Still market money to be made overseas

International equities have made a strong comeback after a decade of underperformance compared to the U.S. stock market. Investing experts believe that this trend is here to stay, driven by shifting macro conditions and growing concerns about the concentration of U.S. markets. This resurgence in international equities has prompted investors to reconsider their lack of exposure to global markets in their portfolios.

Tim Seymour, Chief Investment Officer at Seymour Asset Management, highlighted that the recent interest in international equities is not just about chasing recent performance. He pointed out that over the past ten years, global equities outside of the U.S. significantly underperformed domestic markets, leading to a lack of global allocations among U.S.-based investors. However, the tide has turned, with international equities outperforming U.S. equities by roughly 15% since November 2024.

One of the popular choices for U.S. investors looking to gain exposure to international markets is the iShares MSCI Emerging Markets ETF (EEM), which has returned 42% over the past year. Additionally, the iShares MSCI ACWI ETF has outperformed the S&P 500 by about 5% over the same period. While emerging markets offer higher potential returns, experts suggest a balanced approach with a 70%-30% split between developed and emerging markets.

The weakening U.S. dollar has also played a role in driving interest in overseas markets, improving returns for dollar-based investors holding foreign assets. Furthermore, the surge in metals prices has attracted investors looking for stores of value, creating a global trend rather than one limited to the U.S. market.

Fundamentals in international markets are improving, with earnings growth seen in regions like Japan and Europe. Corporate governance reforms and regulatory changes are driving positive returns in these markets. European banking stocks, in particular, are seen as attractive dividend plays, with companies like Barclays, Santander, and SocGen poised to benefit from central bank policies.

The recent strength in precious metals has also boosted international markets, with regions like Latin America benefiting from rising commodity demand. Countries like Chile, Peru, and Brazil have seen significant gains in their stock markets due to commodity strength and shifting political dynamics.

Overall, the renewed interest in international equities reflects a broader reallocation among investors. Valuation gaps, earnings growth, and a more multi-directional capital and trade landscape are driving this shift towards global investments. As investors look beyond the U.S., they are recognizing the potential for strong returns and diversification in international markets.