The Case for International Equities in a Diverging Global Market Landscape

The global equity landscape in 2025 is marked by stark divergence. While U.S. markets grapple with policy uncertainty and sector-specific volatility, international equities have emerged as a compelling alternative. This is not merely a short-term anomaly but a structural shift driven by resilient corporate profits, currency tailwinds, and geopolitical recalibration. For investors seeking to rebalance portfolios amid this divergence, the case for increasing exposure to non-U.S. equities is both timely and robust.

Lazard’s Q2 2025 Performance: A Mixed but Resilient Picture

Lazard’s Global Equity Franchise strategy exemplifies this duality. In Q2 2025, the fund rose in absolute terms but underperformed the MSCI World Index, particularly in May and June as markets refocused on momentum and growth stocks following the U.S. tariff announcement in April [1]. Despite this, the strategy remains ahead of the benchmark by over 500 basis points year-to-date, net of fees [2]. This resilience underscores the fund’s ability to navigate shifting macroeconomic currents, even as it faces headwinds from U.S.-centric market rotations.

Meanwhile, Lazard’s Developing Markets Equity Portfolio delivered a striking 12.0% gain in Q2 2025, outpacing both developed markets and the S&P 500 [3]. This outperformance was fueled by a weaker U.S. dollar, reduced geopolitical tensions in the Middle East, and surging demand for semiconductors and AI infrastructure in tech-heavy markets like South Korea and Taiwan [4].

Currency Tailwinds: A Catalyst for Non-U.S. Equities

The U.S. dollar’s depreciation has been a critical tailwind for international equities. A weaker dollar reduces import costs for non-U.S. firms, enhances their competitiveness, and boosts the value of foreign earnings when converted into U.S. dollars [5]. In Q2 2025, this dynamic amplified returns for global investors. For instance, the MSCI Emerging Markets Index surged in tandem with the dollar’s decline, reflecting heightened risk appetite and improved economic data from Europe and Japan [6].

Sectoral Resilience and Geopolitical Tailwinds

Corporate profits in international markets have shown remarkable resilience, particularly in sectors aligned with global technological demand. Information Technology and Industrials outperformed across Lazard’s portfolios, driven by strong orders for AI chips and manufacturing equipment [7]. In contrast, Consumer Discretionary and Consumer Staples lagged, reflecting uneven consumer spending patterns [8].

Geopolitical de-escalation in the Middle East further bolstered risk-on sentiment, particularly in emerging markets. Reduced tensions lowered energy price volatility and stabilized supply chains, creating a more favorable environment for global trade [9]. This, combined with accommodative monetary policies in Europe and Japan, has positioned international equities to capitalize on a broader economic recovery.

Strategic Allocation: Why Now?

The case for increasing exposure to international equities is strengthened by three factors:
1. Dovish Central Banks: The U.S. Federal Reserve’s pivot toward rate cuts contrasts with more accommodative policies in Europe and Japan, creating a yield differential that favors non-U.S. assets [10].
2. Structural Demand: Global demand for AI infrastructure and semiconductors is concentrated in non-U.S. markets, offering long-term growth opportunities [11].
3. Valuation Gaps: International equities trade at a discount to U.S. counterparts, offering higher risk-adjusted returns [12].

Conclusion

While U.S. markets remain a cornerstone of global portfolios, the diverging dynamics of 2025 present a unique opportunity to tilt toward international equities. Lazard’s Q2 performance, coupled with currency tailwinds and sectoral resilience, highlights the potential for non-U.S. assets to deliver both diversification and growth. For investors, the question is no longer whether to allocate internationally—but how much.

Source:
[1] Lazard Global Equity Franchise Strategy Q2 2025 [https://lazardassetmanagement.com/ams/en_us/research-insights/investment-insights/investment-research/lazard-global-equity-franchise-strategy-q2-2025-update]
[2] Lazard Global Equity Franchise Fund [https://www.lazardassetmanagement.com/au/en_us/investment-solutions/how-to-invest/14/444]
[3] Lazard's Q2 2025 Commentary on Developing Markets [https://www.ainvest.com/news/lazard-q2-2025-commentary-developing-markets-equity-portfolio-2508/]
[4] Q2 2025 Market Commentary + Outlook [https://wealthadvisors.com/insights/q2-2025-market-commentary-outlook/]
[5] Think Globally in 2025 | Advantages of International Equities [https://www.citizensbank.com/private-banking/insights/international-equities.aspx]
[6] Q2 2025 Market Commentary + Outlook [https://wealthadvisors.com/insights/q2-2025-market-commentary-outlook/]
[7] Lazard's Q2 2025 Commentary on Developing Markets [https://www.ainvest.com/news/lazard-q2-2025-commentary-developing-markets-equity-portfolio-2508/]
[8] Lazard Equity Franchise Portfolio Q2 2025 Commentary [https://seekingalpha.com/article/4817803-lazard-equity-franchise-portfolio-q2-2025-commentary]
[9] Q2 2025 Market Commentary + Outlook [https://wealthadvisors.com/insights/q2-2025-market-commentary-outlook/]
[10] Think Globally in 2025 | Advantages of International Equities [https://www.citizensbank.com/private-banking/insights/international-equities.aspx]
[11] Q2 2025 Market Commentary + Outlook [https://wealthadvisors.com/insights/q2-2025-market-commentary-outlook/]
[12] Think Globally in 2025 | Advantages of International Equities [https://www.citizensbank.com/private-banking/insights/international-equities.aspx]