Five Global Shifts That Could Fuel International Equity Momentum
For over a decade, U.S. equities have led the pack, driven by innovation in tech and strong corporate earnings. However, 2025 is beginning to paint a different picture. With new catalysts emerging abroad, the investment landscape is starting to shift — offering international markets an opportunity to play catch-up or even take the lead.
Here are five trends worth watching that could help propel a more sustained rotation into international equities:
1. The AI Playing Field Is Evolving
Early 2025 brought a surprising twist in the AI race — Chinese tech companies claimed to have developed competitive generative AI tools without access to top-tier U.S. semiconductors. Firms like DeepSeek, Alibaba, and Tencent say they’ve achieved meaningful breakthroughs using lower-power, alternative architectures.
If validated, this could broaden investor interest in AI beyond a small group of U.S.-based leaders. It also opens up potential across global supply chains — chipmakers in Taiwan, lithography leaders in Europe, and diversified tech conglomerates in Asia may all benefit from a more democratized AI ecosystem.
2. Global Fiscal Stimulus Is Gaining Steam
While the U.S. is dialing back post-COVID stimulus and facing political pressure to reduce government spending, other regions are shifting gears. Europe, in particular, is leaning into infrastructure and defense investments — Germany alone is expected to roll out a fiscal package exceeding $1.5 trillion.
This international push comes as much of the U.S. fiscal lift from the Inflation Reduction Act has already been deployed. As a result, the relative tailwind from government spending may start favoring non-U.S. economies.
3. Tariffs Could Tilt the Playing Field
The re-introduction of tariffs by the U.S. administration caught markets by surprise in early 2025. While the long-term impact remains to be seen, there’s growing concern that U.S. manufacturers — especially those reliant on global components — may be more exposed than their international peers.
Many overseas companies have diversified supply chains and greater production flexibility, giving them the option to pivot more easily and avoid some of the tariff fallout. If this trend continues, non-U.S. firms may find themselves with a competitive advantage.
4. Shareholder-Focused Reforms in Asia
Japan kicked off a wave of governance reforms aimed at improving return on equity and shareholder engagement. South Korea has since followed suit. While it’s still early days for Korea’s reform program, Japan has already seen a rise in share buybacks, dividends, and price-to-book ratios.
This renewed focus on corporate efficiency and capital return could attract more investor attention to a region that’s long been labeled as undervalued.
5. Valuations Remain Attractive — With Room to Run
Valuation gaps between U.S. and international equities have persisted for years, but the current discount is especially wide. As of May 31, 2025, international equities (as measured by the MSCI ACWI ex USA Index) were trading at a 35% discount to the S&P 500.
While valuations alone have not historically been enough to drive outperformance, they create a compelling entry point — particularly if paired with new catalysts like the ones outlined above.
The Takeaway
International equities have long offered diversification potential, but the narrative may finally be shifting from “cheap for a reason” to “poised for leadership.”
Between changing global policy, emerging tech dynamics, and valuation support, investors may want to take a fresh look at their international exposure — this time with more than just diversification in mind.