US stocks had a remarkable 2025. But international markets did much better

By John Towfighi, CNN

(CNN) — US stocks had a stellar 2025, but global markets stole the show.

A major index tracking stocks outside the US, the MSCI All Country World ex-USA, gained 29.2% in 2025, handily outpacing the S&P 500’s gain of 16.39%.

The artificial intelligence boom has benefited markets in Asia, where tech companies and chipmakers have seen surges in demand. In Europe, markets received a boost from plans for government spending on defense and improved prospects for economic growth.

A weaker US dollar also provided a tailwind for international stocks. When the dollar weakens and other currencies strengthen, investments denominated in those currencies become more valuable when converted back into dollars.

The US dollar index, which measures the dollar’s strength against six major currencies, fell by roughly 9.4% in 2025, its worst year since 2017.

Heading into 2025, US stock valuations were already relatively expensive compared to the rest of the world, creating an incentive for investors to look for returns in different markets.

“A lot of things went right for international stocks in 2025,” Michael Reynolds, vice president of investment strategy at Glenmede, told CNN.

“After a couple years of lackluster fundamentals, foreign equities put together a strong year of earnings growth,” Reynolds said. “This was highlighted by fiscal stimulus in Europe and AI-related growth in Asia.”

Global AI boom

Markets in Asia have been riding the wave of AI enthusiasm.

Tech companies and chipmakers in South Korea, Taiwan, Japan and China all benefited last year from investor interest in AI.

South Korea’s Kospi index soared almost 76% in 2025 and posted its best year since 1999. Japan’s Nikkei 225 gained 26%, lifted by gains in tech companies and chipmakers.

In Japan, shares of memory chip maker Kioxia surged 536%. And in South Korea, shares of tech giant Samsung surged almost 130%.

“The AI trade has broadened materially over the past year,” said Arun Sai, senior multi-asset strategist at Pictet Asset Management. “That optimism has increasingly been priced in beyond the US, extending globally, particularly into markets such as Korea and Japan.”

In Taiwan, shares in Taiwan Semiconductor Manufacturing Company (TSM) gained 46.54% last year and hit record highs. Meanwhile, shares of China-based Alibaba (BABA) soared 75.81% as the company embraced AI and launched its own chatbot.

Growth and defense

Stocks in Europe rallied in early 2025 as the German government enacted historic reforms to boost spending on defense. European defense stocks rallied last year, with German manufacturer Rheinmetall gaining 154%.

Meanwhile, improving outlooks for the economies in Greece, Spain and Poland benefited those countries’ markets. European banks like Santander (SAN) and Deutsche Bank (DB) also had standout years, each rising about 126% and helping lift markets.

Spain’s benchmark IBEX 35 index gained 49% and had its best year since 1993. Italy’s FTSE MIB gained almost 32% and had its best year since 1998. Germany’s DAX climbed 23% and Greece’s ATHEX Composite gained 44%, each posting their best year since 2019. Poland’s WIG index rose 47%.

“In a year when the falling dollar sent investors scrambling for global exposure, Poland offered a unique mix of growth and value,” said David Russell, global head of market strategy at TradeStation.

“Greece is finally recovering from a decade-long debt crisis,” Russell said. “The country recovered its investment-grade rating at Moody’s and enjoyed a tourism boom. It’s a classic comeback story following a period of bad loans and low multiples.”

The UK’s benchmark FTSE 100 index gained 21.51% and had its best year since 2009. The index then kicked off 2026 on a strong note, briefly rising above a record high 10,000 points on Friday for the first time ever.

Diversification

For US investors, analysts say the dollar will be key to gauge international stocks’ returns.

“If the dollar continues to weaken, foreign stocks may continue to have the wind at their back,” Reynolds at Glenmede said.

While international markets had a year of outperformance, some investors say the fundamentals still support the United States.

“We still favor the US first and international second,” said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute. “We feel the dollar will stabilize, which will help to dampen the advantage for emerging market equities.”

Wall Street remains optimistic about the outlook for US stocks as corporate profits have been resilient, and there is optimism that AI will continue to drive earnings growth. Still, investors last year looked overseas to diversify portfolios amid heightened uncertainty, and international — both developed and emerging — markets proved to be a strong pick.

“One of the biggest and most underappreciated surprises of 2025 has been the extraordinary outperformance of emerging market (EM) equities,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said in a December 15 note.

“Overweighting the US has served global investors well the past 15 years,” Shalett said. “That said, we believe shifting geopolitical, monetary and fiscal policy regimes amid technological upheaval and the constraints of developed world debt are creating a need for diversification beyond US stocks and bonds for long-term investors.”

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