October 13, 2025

QuickTakes

Will Next Year Be Another

Good Year To Go Global?

Go Global has outperformed Stay Home so far this year. Based on FTSE data, the US stock market index (up 11.8% ytd) has underperformed the World index (13.4%) so far this year in local currency (chart). Its underperformance has been worse in US dollar terms since the greenback has been weak this year. Among the outperformers this year, in local currency, have been South Korea (56.0%), Spain (38.3%), China (36.0%), Hong Kong (25.8%), Italy (23.3%), and Taiwan (22.9%).

Interestingly, in China, Basic Materials (86.2%) and Health Care (75.1%) have been the best-performing sectors. In Spain, the financial sector (78.1%) has been the big winner. In Taiwan, Industrials (48.5%) outpaced Technology (26.2%) so far this year.

It is relatively easy to overweight the rest of the world (ROW) in global portfolios because the US accounts for such a significant portion (65.0%) of the market capitalization of the All Country World MSCI (chart).

While the ROW outperformed during the first half of this year, it may be starting to underperform again. The ratios of the US MSCI divided by the All Country World MSCI in local currency and in dollars have been rising in recent weeks, and both ratios remain on uptrends that started in 2010.

Exacerbating the underperformance of the US stock market has been the weakness of the US dollar so far this year. The DXY dollar index has been weaker than the MSCI's foreign currency value of the US dollar (chart). In any case, we still believe that the dollar remains in a bullish uptrend that has been interrupted by a correction this year, which we don't expect to turn into a bear market for the dollar.

The outperformance of the US relative to the ROW since 2010 is attributable to a much stronger advance in forward earnings that has gotten stronger in recent weeks on both an absolute and relative basis (chart).

The forward earnings of the US MSCI has increased almost twice as fast as has the forward earnings of the ROW since 2010 (chart).

US MSCI earnings have risen faster than in the ROW because US MSCI forward revenues has been rising rapidly especially since 2020, while the revenues of the ROW has been relatively flat (chart).

Furthermore, the forward profit margin of the US MSCI at 14.0% currently is well above the 10.0% in the ROW (chart).

Also contributing to the outperformance of the US MSCI versus the ROW has been the widening divergence between the forward P/E of the US relative to the ROW (chart).

Before 2010, the forward P/E of the US MSCI tended to be about 10% higher than the ROW (chart). Since then, it rose to 70% at the start of this year. Now it is down to about 55% higher. Global investors, seeking cheaper stocks, have boosted the ROW forward P/E relative to that of the US so far this year.

Here is the relative performance of the MSCI stock price indexes in local currencies ytd for the major stock markets around the world:

Here is the same chart in dollars:

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