International Stocks Outperform U.S. by 49% in 2025, Sparking Global Shift

International stocks have significantly outperformed U.S. stocks since 2025, marking a notable shift in global investment trends. This development has sparked intense debate among strategists, who are divided on whether this change is temporary or indicative of a long-term trend. A strategist from a prominent French bank has suggested that the reallocation of funds from the U.S. to international markets is still in its early stages and could persist.

The strategist pointed out that the flow of funds into international markets has been substantial, with Europe emerging as a favored destination. Direct stock fund inflows into Europe reached 490 billion, nearly double that of the U.S. at 270 billion. This trend is further supported by the flow of funds into global developed market funds, which is almost twice that of U.S. funds. Approximately 40% of these funds exclude U.S. stocks, indicating a strong preference for international exposure.

Emerging markets have also seen a robust return of capital, with fund inflows totaling 230 billion, slightly less than that of the U.S. China, in particular, has attracted significant attention, with funds focused on the region receiving 110 billion in inflows. The strategist noted that while the weakening U.S. dollar has contributed to this shift, it is not the sole factor driving the trend. The dollar's decline has reduced the weight of U.S. stocks in global portfolios, but other geopolitical and economic factors are also at play.

The strategist's analysis revealed that despite U.S. stocks comprising nearly 70% of the global stock fund market value, only 30% of the funds have flowed into these stocks over the past three months. This discrepancy suggests that investors are increasingly looking beyond the U.S. for opportunities. The strategist also highlighted the escalating geopolitical tensions between the U.S. and other regions, which could further fuel this shift in investment patterns.

This global reallocation of funds has significant implications for investors and policymakers alike. For investors, diversifying portfolios to include a higher proportion of international stocks could be a strategic move. For policymakers, creating an attractive environment for foreign investment is crucial. As the global economy continues to evolve, the dynamics of investment flows will play a pivotal role in shaping economic outcomes. The strategist's insights underscore the importance of staying informed and adaptable in an ever-changing market landscape.