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Global equity markets have entered the second half of 2025 with remarkable momentum, led by non-U.S. equities that are posting historic performance gaps compared to U.S. stocks. Investors are reassessing portfolio allocations and embracing broader geographic exposure to capture these opportunities.
During the first four months of 2025, non-U.S. equities outpaced U.S. markets by roughly 10% in U.S. dollar terms, marking one of the largest such gaps in fifty years. Flows have shifted away from domestic markets and toward Europe, Asia, and emerging economies.
This shift reflects a broader theme: the reversal of a long-standing U.S. overweight. After years of underdiversification, investors are now recognizing the diversification benefits of global allocations, reducing “home bias” and seeking growth where valuations and policy catalysts align.
Several regional indices have distinguished themselves in 2025. Hong Kong’s Hang Seng Index leads the pack, fueled by optimism around AI, blockbuster IPOs, and renewed investor interest. Europe’s powerhouse, Germany, is also shining bright thanks to a massive infrastructure fund and declining inflation that paves the way for rate cuts.
Monetary policy has been a key driver behind the surge outside the U.S. In Europe, falling inflation has opened the door for rate cuts, boosting investor sentiment. In the U.S., prospects for eventual rate reductions by 2026 are tempered by mixed growth data and persistent volatility.
On the trade front, new tariffs in early 2025 triggered a sharp sell-off before markets rebounded. Though volatility remains elevated, the resilience of non-U.S. equities suggests that investors are looking beyond short-term headlines and focusing on structural growth catalysts.
Several themes have propelled regional markets. The industrials sector, buoyed by post-pandemic restocking and expanding AI infrastructure, is thriving in Asia. Meanwhile, Europe’s defense and technology producers are benefiting from strong government spending.
Healthcare and pharmaceuticals present a mixed picture. Although regulatory pressures persist, areas like immunology and obesity therapies offer pockets of opportunity. Investors who identify these niches can tap into long-term innovation trends while balancing risk.
The performance gap underscores the pitfalls of concentrated portfolios. With retail investors still holding over 80% of U.S.-listed ETFs in domestic stocks, many have overlooked the potential of global diversification.
Allocating capital beyond familiar markets can enhance risk-adjusted returns. It also provides exposure to unique policy environments and growth stories that are absent in the U.S. market.
Looking ahead, markets with structural reforms, fiscal stimulus, and technology leadership are positioned to maintain their edge. Asia’s AI adoption, Europe’s infrastructure revamp and rate relief, and selective emerging markets all offer compelling cases for continued outperformance.
However, investors should remain vigilant. Prolonged trade tensions could unsettle markets, U.S. election dynamics may amplify volatility, and pockets of inflation could delay monetary easing in key regions.
As the second half of 2025 unfolds, a disciplined approach that balances growth opportunities with risk mitigation will be essential. By embracing a truly global equity strategy, investors can capitalize on diverse market dynamics and position portfolios for a robust finish to the year.
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