Quick Bite – ROW Outperforming US Markets
Daily, we read about US stock markets reaching new all-time highs – the latest of which was on Monday 27 October. But it’s not just the US. Indeed, it might surprise readers to know that since the beginning of the calendar year, the global sharemarket index has beaten the US, and by a handsome margin of 11%.
Source: Wall Street Journal, FactSet
The MSCI All Country World ex USA Index, which tracks developed and emerging-market stocks, is up around 26% in 2025 on a US-dollar basis. That beats the US benchmark S&P 500 index which is up 15%. In contrast, South Korea’s Kospi is up 64%, Germany’s DAX +22%, Japan’s Nikkei 225 has climbed 24% and the UK’s FTSE 100 has risen 18%. Unfortunately, the ASX 200 is up only a paltry 10%. Still, that’s not too bad!
Concerns about the US economy’s growth prospects, the unpredictability of President Trump and a continuing trade war with China have led US investors to look beyond America’s shores for stocks at attractive prices. In fact, those international stocks are on pace to outperform their US counterparts by the widest margin in 16 years.
Source: WSJ, FactSet
A sea of green
Source: Trading Economics
The performances mark a reversal from the past decade, when strong returns from US stocks gave rise to a narrative of “American exceptionalism,” the belief that strong economic growth, high profit margins and leading tech companies made America’s stock market the best place to invest.
But wariness has crept into sentiment, with valuations sparking talk of bubbles, AI capex spending going through the roof with no guarantees of returns on investment, weakening labour markets and continual tariff strife. And yet, markets have powered on, especially for the largest companies, fortified by dovish central banks and generally sound US earnings growth.
Source: Yardeni Research
Despite volatility, US markets have continued their climb, led by the large caps. But outside the US, markets are playing catchup.
One factor behind international stocks’ performance has been the decline in the USD. The WSJ Dollar Index has dropped 6.3% this year, weighed down by concern about tariffs, Federal Reserve independence and growing US government debt.
Equities outside the US look cheaper than US shares. Companies in the S&P 500 are trading at around 23x projected earnings over the next 12 months. In comparison, Japan’s Nikkei 225 trades at 21x and Hong Kong’s Hang Seng multiple is about 12x. In Australia, the ASX 200 is trading around 19.5x next year’s earnings – but that multiple could fall if commodity prices stay high and miners’ earnings exceed expectations.
US stocks still beat their international counterparts over the last 10 years. The S&P 500 climbed around 225% over the past decade, while the Nikkei 225 gained about 158% and the FTSE 100 added 49%. The ASX 200 returned around 139% over the decade, but that would increase to around 175% with franking credits added in (approx. 8.5-9%pa, or over 10%pa with franking credits).
Analysts expect 11% earnings growth for S&P 500 companies over the next year, the best growth rate since the beginning of the pandemic recovery in 2021, according to FactSet. Expectations for lower interest rates and tax cuts are expected to bolster corporate profits and keep the economy growing.
Developed markets inflation is low enough to allow central banks to continue to lower rates. This is fuel for the global bull market. Goldman Sachs’ DM composite trimmed core inflation remained only slightly above Central Banks’ 2% target in September.
Source: Goldman Sachs
