US stock markets experienced a solid performance in 2025, with the S&P 500 rising by 16.39%. However, the true spotlight was on global markets, particularly those outside the United States. The MSCI All Country World ex-USA index achieved an impressive gain of 29.2%, significantly outpacing its US counterpart.
This broad international success can be attributed to several factors, notably the booming interest in artificial intelligence (AI) that has driven substantial demand for tech companies and semiconductor manufacturers across Asia. Meanwhile, European markets benefited from increased government spending on defense and improved economic outlooks.
A key contributor to the outperformance of international stocks was the decline of the US dollar, which fell approximately 9.4% in 2025—marking its worst annual performance since 2017. A weaker dollar makes investments in foreign currencies more attractive, as returns from those investments can be more lucrative when converted back into dollars. This exchange rate dynamic encouraged investors to seek returns in global markets, given the relatively high valuations of US stocks compared to international options.
Michael Reynolds, vice president of investment strategy at Glenmede, noted, “A lot of things went right for international stocks in 2025.” He highlighted strong earnings growth among foreign equities, largely driven by fiscal stimulus in Europe and AI-driven expansion in Asia.
In Asia, countries such as South Korea, Taiwan, Japan, and China capitalized on the AI enthusiasm. The Kospi index in South Korea surged nearly 76%, marking its best performance since 1999, while Japan’s Nikkei 225 gained an impressive 26%. Noteworthy stocks included Kioxia, a memory chip maker, which saw its shares skyrocket by 536%. In South Korea, tech giant Samsung enjoyed nearly a 130% increase in its stock value. Arun Sai, a senior multi-asset strategist at Pictet Asset Management, commented on the global proportion of the AI trade, stating, “The optimism has increasingly been priced in beyond the US, extending globally.”
Taiwan Semiconductor Manufacturing Company (TSM) also thrived, with a growth of 46.54%, reaching record highs. Additionally, Chinese e-commerce giant Alibaba saw its stock skyrocket by 75.81% as it embraced AI technology with the introduction of its chatbot.
In Europe, stocks rallied as the German government implemented significant reforms to enhance defense spending. This led to remarkable gains for defense companies, with German manufacturer Rheinmetall’s shares increasing by 154%. Improved economic forecasts for Greece, Spain, and Poland also contributed to market gains. Major European banks, including Santander and Deutsche Bank, saw substantial increases of approximately 126%.
The benchmark indices of Spain and Italy performed well, with Spain’s IBEX 35 gaining 49%—its strongest performance since 1993—and Italy’s FTSE MIB climbing nearly 32%. Germany’s DAX rose 23%, and Greece’s ATHEX Composite jumped 44%, solidifying its recovery from past economic difficulties.
Analysts believe the trajectory of the US dollar will remain critical in assessing the returns of international stocks going forward. Reynolds remarked, “If the dollar continues to weaken, foreign stocks may continue to have the wind at their back.”
Despite the strong showing of international markets, some investors maintain a preference for US investments. Sameer Samana from Wells Fargo Investment Institute commented, “We still favor the US first and international second,” suggesting that stabilization of the dollar could diminish the competitive edge of emerging markets.
While Wall Street remains hopeful about US stocks, attributing resilience in corporate profits to ongoing AI growth, many investors sought to diversify their portfolios amid global uncertainties. Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, concluded that the notable outperformances of emerging market equities in 2025 highlight the changing dynamics of global investment strategies and the need for diversification beyond traditional US assets.
