While Wall Street suffers its first bear market since 2022, many world markets across the oceans and in Latin America are having jealousy-inducing gains, eroding the once-dominant U.S. performance in global stocks.
Stock indexes in Germany, Poland, Spain, Brazil and other countries are up as much as 25% year to date. That's way better than the S&P 500 and Nasdaq, which are down nearly 6% and 10%. U.S.-based exchange traded funds that track those foreign markets are doing even better. Several are up more than 20% as investors ask themselves, "How did that happen?"
Even as President Donald Trump's trade war spreads worry across many countries (the IMF cut its global growth outlook on April 22), investors are often finding much better alternatives overseas than on Wall Street.
And it's not just Trump's upending of global trade that's behind the shift. Strategists point to stock valuations (cheaper abroad), stimulus measures (Germany in particular), plus some fortuitous trends for the yawning performance gap.
"After 10-plus years of the 'American exceptionalism' trade, global investors have very quickly rediscovered the value of geographic diversification," Nicholas Colas, cofounder of DataTrek Research, wrote in a note to clients April 23.
Overweighing U.S. stocks to some degree still makes sense because of U.S. disruptive innovation and other factors, Colas said in a Tuesday note. Yet, today it's also risky to underweight foreign markets. The contrasting gap in monetary and fiscal policies in Europe and China vs. the U.S. "is too wide to ignore."
U.S. Stock Market Overvalued
The U.S. stock market had become quite expensive in terms of valuation, and the rollout of tariffs was the catalyst that caused the U.S. market to roll over, says Jim Masturzo, chief investment officer for multi-asset strategies at Research Affiliates. By comparison, Europe and emerging world markets remain more fairly valued even after this year's gains.
"We've seen this bifurcation between developed markets and U.S. and a lot of that is investors recognizing that the U.S. was overvalued," Masturzo said.
Risk Management: How Invested In The Market Should You Be Right Now?
The investment advisory firm's long-term valuation model shows U.S. large caps with some of the priciest valuations among various global asset classes. Average U.S. stock returns over the next 10 years are expected to be less than 4%, based on that model. In contrast, emerging markets, Europe and other developed countries show expected returns of around 8%-9%.
"South America from a valuation perspective is quite attractive," he added. Even Poland, which is up 25% this year, still looks slightly cheap.
Currency trends also appear to work in foreign markets' favor. A strong dollar made it harder to invest abroad over the past decade, Masturzo said. But the greenback's fall (the WSJ Dollar Index is down nearly 7% this year) has provided a tailwind for world markets, even before the tariff shock.
ECB Easing, While Fed Stuck
At a time when the Federal Reserve is reluctant to resume cutting interest rates, the European Central Bank has been steadily loosening for about nine months. That's provided a boost to European economies.
| International Stocks – 2025 ETF Performance* | |||
|---|---|---|---|
| Symbol | Name | % Chg YTD | % Chg 1 Month |
| EPOL | iShares MSCI Poland ETF | 45.2 | 6.6 |
| EWP | iShares MSCI Spain ETF | 33.0 | 7.6 |
| EWO | iShares MSCI Austria ETF | 26.5 | 4 |
| ECH | iShares MSCI Chile ETF | 24.8 | 5 |
| EWW | iShares MSCI Mexico ETF | 24.1 | 12.6 |
| EWG | iShares MSCI Germany ETF | 24.0 | 5.6 |
| EWI | iShares MSCI Italy ETF | 23.0 | 3.3 |
| EWZ | iShares MSCI Brazil ETF | 20.9 | 4.8 |
| EWL | iSh MSCI Switzerland | 16.9 | 2.3 |
| EWD | iShares MSCI Sweden ETF | 16.8 | 1.6 |
| EWQ | iShares MSCI France ETF | 14.4 | 1.7 |
| EWK | iShares MSCI Belgium ETF | 14.3 | 5 |
| EWU | iSh MSCI United Kingdom | 12.7 | 1.6 |
| *Data as of April 29 |
Around the middle of last year, Europe began to improve and look better vis-a-vis the U.S., says Michael Field, chief European market strategist at Morningstar. With inflation running more moderately than in the U.S., the ECB had more room to cut interest rates, which they did.
"And that paved the way for a better economic picture for Europe," Field explains.
EU interest rates are around 2.5% and higher in U.K. Inflation is about 20 basis points off 2% ECB's target rate, he added. GDP expectations have shifted, too. Last year, the American economy grew at roughly twice the EU rate. This year, economists had expected EU GDP to grow 1.3% or 1.4%, a narrower gap with the 1.7% expected for the U.S., although these forecasts are now up in the air.
Meanwhile, as the Trump administration backs away from its NATO commitments, Germany and other European nations are raising their defense spending.
"I think that the approval for military spending has been a major driver of European stock markets this year; military and defense stocks saw important inflows," Ipek Ozkardeskaya, senior analyst at Swissquote Bank, told IBD by email. "The tariff uncertainties have taken a toll on sentiment recently but boosting military and infrastructure will likely fuel growth without fueling inflation at the same speed, giving the ECB margin to support."
The MSCI EMU Aerospace and Defense Index is up more than 30% this year, according to FactSet.
DAX Stock Market Index Rises
While there are multiple ways to measure market performance — country indexes, dollar- or local-currency gauges and ETFs — ETFs provide the easiest way for U.S. investors to gain exposure to world markets. Many are concentrated in fewer companies that outperform their broader market indexes. Here's some of the best European ETFs:
While major indexes in London and Paris are up less than 3% year to date, Germany's DAX index is up 12.6%. Europe's largest economy got a 500 billion-euro stimulus March 18, when lawmakers approved a package of military and infrastructure spending.
Streamline Your Hunt For The Best Stocks
The iShares MSCI Germany ETF is up 24% and at new highs.
The ETF's major holdings include software developer SAP, with 16% of the fund's weighting. Industrials Siemens and Rheinmetall plus financials Allianz and Deutsche Boerse. The U.S.-traded shares of those companies are near highs, while SAP broke out past a 280.44 buy point Monday. Siemens shares are consolidating.
Poland Stock Market Soars
IShares MSCI Poland has climbed more than 45% year to date. The WIG index up more than 26%.
Reports say this year's rally has been driven by the Poland's largest companies, including banks. The largest component of the ETF and WIG index is PKO Bank Polski, a consumer and business bank. Earning per share are expected to climb 20% this year after a 69% jump in 2024, says FactSet.
The No. 2 Polish company is Orlen, a refiner that provides aviation fuel, heating fuels, natural gas, oils other products such as petrochemicals. It also has a network of gas stations and provides electricity and heat distribution.
Perhaps more importantly, Poland is witnessing a surge in tech jobs. Earlier this year, Alphabet signed a deal to develop AI in Poland, where the company has its largest engineering hub, with more than 2,000 employees. Microsoft is also investing in Poland.
The iShares MSCI Spain ETF has climbed more than 30%. Spain's IBEX 35 index is up more than 15%.
Spain, Italy Stock Markets Climb
For about two years, the Southern European economies have been the growth engine of the continent, Field says. Spain is at the forefront, while France and Germany lagged. "With regard to Spain, you had a pretty good performance from a lot of the companies within that index, and coupled with that the actual Spanish economy has been doing as well."
IShares MSCI Italy ETF is up 24.1%. The FTSE MBI index is up more than 6%.
Similar to Spain, the Italian economy has been quite strong, driving markets. Some major banks have given the index a boost in 2025. Automaker Stellantis has been a drag on the Italian market, but for the most part the good news has overcome the bad, Field noted.
Among other outperforming European stock markets:
- IShares MSCI Austria up 26.5%. The ATX index is up nearly 12%.
- IShares MSCI Switzerland up 16.9%. The SMI index is up 4%.
- IShares MSCI Belgium up 14.3%. The BEL 20 index is up 2.6%.
South American Stock Markets
The iShares MSCI Brazil up about 21%. The Bovespa has gained 12.5%.
While Trump hit Brazil with a 10% blanket tariff, South America's largest economy is emerging a winner in the trade war. Brazil is rich in raw materials China needs, including beef, soybeans iron ore and crude oil. Brazil is the biggest producer of footwear outside Asia. And Brazil could use tariffs to its own advantage by boosting exports countries weighed by tariffs.
The Brazil ETF is most heavily weighed on financials (36% of the portfolio). The single largest holding is Nu Holdings, a digital banking platform whose U.S.-traded shares are up about 20% this year.
Energy, materials, utilities and industrials make up 10% to 15% of the fund and figure to benefit from larger exports. The Bovespa index, by comparison, is 28.2% financials, according to FactSet. Materials comprise 16.3%, energy 14.8% and utilities 13.8%.
Mexico: A Softer Blow From Tariffs?
The iShares Mexico ETF is up 24% this year.
Mexico's IPC index has climbed 12.3% year to date, but is still down 4% from its peak in February 2024. The index plunged 6.1% June 3, 2024, after left-leaning parties won presidential and other elections.
Materials make up about 17% of the IPC, with financials, telecoms and industrials accounting for 11% to 15% each. The largest sector in the index is consumer noncyclicals, or more than 40% of the index.
Fomento Economico de Mexico, a bottler of Coca-Cola products, and bank Grupo Financiero Banorte are the largest components, each with more than 10% of the IPC.
Other stocks in the Mexico ETF and index include cement supplier Cemex, retailer Walmart de Mexico and wireless service provider America Movil.
Tariffs threaten a recession for Mexico's economy because one-third of the country's GDP is from exports, and around 80% go into the U.S., Jeffrey Kleintop, managing director and chief global investment strategist at Charles Schwab, said in a March 24 report.
Yet the impact on Mexican companies may be softened because Mexico's largest exports to the U.S. are goods produced by U.S. companies operating in Mexico, Kleintop added. Mexico's biggest exporters are automakers based in the U.S. In addition, a lot of Mexican companies have large operations inside the U.S., such as Cemex. Those goods would not be subject to tariffs.
Chile: Recovering Wages, Monetary Policy
The iShares MSCI Chile has rallied 24.8% while the IPSA index is up nearly 20%.
In a January report, the Organization for Economic Co-operation and Development said Chile's growth recovered firmly in 2024 and this year's outlook remains positive. Falling inflation has allowed the central bank to continue its easing cycle.
"Growth is projected to recover to 2.4% in 2024 and to remain solid at 2.3% in 2025 and 2.1% in 2026. Recovering real wages and monetary policy easing will support higher real income and consumption growth. A gradual improvement of credit and financial conditions in Chile should increase access to credit for consumers and spur investment growth. Investment in mining projects will grow on the back of sustained demand for minerals within the global green transition."
Chile came under the 10% reciprocal tariffs announced in April, although Chile argues a free-trade agreement between the two countries signed in 2004 justifies minimizing the levy. The Trump administration is also considering tariffs on copper, which has Chilean officials worried.
Chile is the world's largest copper producer and main supplier of the strategic metal to the U.S. It is also a leading producer of lithium, critical to a broad array of battery types, including for electrical vehicles.
Foreign Banks Shine In Some World Markets
Among specific world stocks, several banks are outperforming in the hot regions.
Deutsche Bank shares are trading at the highest since August 2015 and up for six straight months. The stock is up more than 56% this year. Most of that came with a breakout to new highs on Jan. 14. Shares plunged in early April on tariff worries but the stock has more than made up those losses.
The German bank Tuesday topped profit expectations as after-tax profit rose 39%. First-quarter results put Deutsche Bank on track for its 2025 targets.
British bank Barclays is near new highs. On Feb. 13, Barclays said it expects to increase profitability this year. U.K.-based NatWest Group broke out past a 12.65 buy point April 23. It owns a 98 Composite Rating.
Spain's BBVA is up nearly 45% in 2025 and is forming a cup base with a 14.84 buy point.
In India, Icici Bank and HDFC Bank broke out of a cup-with-handle bases in April. HSBC is forming a cup base with a 61.88 buy point. It has a 98 EPS Rating, the highest of 26 stocks in IBD's money center banks group.
Brazil-based Itau broke out of a cup-with-handle base April 22 and is extended from the 5.80 entry. Peru's Creditcorp is breaking out past 200. Both have Composite Ratings in the 90s.
What About China's Stock Market?
Even China — the main target of U.S. tariffs and trade hostility — is outperforming Wall Street this year.
The Hong Kong-based Hang Seng Index is up 9.7% year to date, while the Shanghai Composite is down 1.9%, still beating the S&P 500. China-focused ETFs such as Krane CSI China Internet are up 10% or more.
Swissquote's Ozkardeskaya has written that the DeepSeek artificial intelligence boom has given Chinese equities a boost this year. China can boast Big Tech names that have a proven track record for building game-changing technology, such as Alibaba and Tencent. And Chinese consumers tend to adopt new technologies quickly, allowing advances to spread faster.
"Does that counterweigh the political, geopolitical and trade risks? Time will tell," she added.
Trump singled out China for tariff retaliation, raising levies to 145%. Faced with economic costs, Chinese policymakers are likely roll out stimulus measures, analysts believe. Already, the People's Bank of China is allowing the yuan to depreciate to its weakest level against the U.S. dollar in more than a decade, Morningstar international economist Grant Slade said in an April 10 report. That helps offset the impact of the trade war on China's economy.
U.S. Exceptionalism Falters
This year's Wall Street struggles come after more than a decade in which U.S. investors were spoiled with better returns than just about anywhere on the planet. Historically, the U.S. stock market outperforms the rest of the world, based on multiple gauges.
In fact, every rolling 10-year period since 2013 has favored the U.S. stock market, State Street Global Advisors said in a November report. Taking into account currency translation, the U.S. has beaten a hedged version of the rest of the world 180 straight rolling 10-year periods.
- U.S. stocks have beaten all other G6 nations over every rolling 10-year period since 2015.
- U.S. small-caps have outperformed foreign small caps in every 10-year rolling period since 2013. This means it wasn't just megacap firms that drove U.S. returns.
- Both U.S. value and growth stocks have outperformed non-U.S. gauges during every rolling 10-year period since 2010.
Emerging Markets
The results haven't been much better for emerging markets.
According to DataTrek Research, the MSCI Emerging Markets equity index has, on average, underperformed the S&P 500 by 3.8 percentage points in any given 100-day period since the start of 2015.
Five times in that 10-year period, the emerging markets benchmark outperformed the S&P 500 by two standard deviations. Each time, emerging markets went on to underperform U.S. large caps by an average of 5.7 percentage points, says analyst Colas. At the time of the April 23 report, the emerging market index was almost at that threshold.
China, which accounts for 29% of the MSCI Emerging Markets index, also is beating Wall Street at a pace where it's like to start lagging the U.S., Colas says.
MSCI China has, on average, underperformed the S&P 500 by 3.4 percentage points over any given 100-day holding period since 2015.
While the data suggest it's time to underweight emerging markets and China, Colas says China must provide stimulus to its economy to get through a potentially lengthy trade tensions. "Global trade policy uncertainty is unlike anything global markets have seen in the last decade," Colas said. "Historical return bands may therefore not be as reliable as under more comparable conditions."
Outlook For World Markets
Can foreign stock markets keep outperforming the U.S.? Economists and analysts believe the ever-shifting narrative around tariffs makes it difficult to forecast performance. Most who shared their outlooks with IBD said risk remains cemented into world markets.
"Stepping back from the day-to-day volatility for a minute, this is simply an extraordinary moment. We will look back years from now and realize this was a transformational moment when geopolitics, trade, global security accords, and accelerated de-globalization all collided at once, resetting the global order, Darrell Cronk, president of Wells Fargo Investment Institute and chief investment officer at the bank's Wealth & Investment Management division, has said.
"Is it any wonder that financial markets are serving as the real-time transmission mechanism for these events?"
