CIO outlines what drove outperformance in other equity markets this year, explains what advisors can watch for to see if trends will continue
After almost a decade of consistent US equity market outperformance relative to the rest of the world, 2025 saw new opportunities popping up across the globe. Different markets popped at different times and advisors were forced to pay closer attention to these shifting trends, staying cognizant of the macro themes and fundamental drivers that saw periods of outperformance in Europe, China, Japan, and even Canada.
David Stonehouse, interim CIO at AGF Management Limited, explained how these macro and micro forces saw many global markets outperform the US, even as US equities posted double-digit growth. He outlined the way that US policy, market valuations, and investor sentiment also contributed to this more global shift in 2025 while stressing that the sustainability of this trend long-term is still very much unknown.
“It's been a story of a couple of phases to the year from a time perspective, a serial perspective, and some degree of rotation from a regional perspective. When you step back and take a look at the outcome to where we are today, there was enough good news coming out of Europe that we've ended up with Europe basically being able keep pace with the US year to date and Asia is still looking very healthy,” Stonehouse says. “I would say that the jury's probably out in terms of whether what we started to see earlier this year represents the leading edge of a substantial and secular or longer term shift or if that was just a temporary blip and we're back on the theme that's been working for the last dozen years or so.”
The global story of 2025 began in Europe, which has been a longstanding equity underperformer. Valuation disparities between the US and Europe, shifts in German budgetary policy, and the apparent greater willingness by the new US administration to tolerate more negative market reactions to its policies all saw European equities move higher. European defence stocks were among the leaders as the US showed itself less willing to prop up Europe’s security.
Stonehouse notes that another blow to the US exceptionalism thesis came when Chinese AI model DeepSeek was launched, showing that by focusing on efficiency rather than pure computing power AI progress could be made outside of the United States. This was followed by a series of US tariffs that quite dramatically upset US equities and prompted a host of other structural issues around the US dollar, the sustainability of US sovereign debt, and saw cracks forming in the foundational narrative of US exceptionalism.
Stonehouse notes that the initial reactions to US tariffs may have gone too far. When some tariff rollbacks were announced, US equity growth resumed. Since that point European markets have largely stagnated, maintaining their gains from earlier in the year but losing their growth momentum. Anaemic GDP growth and the overhang of conflict in Ukraine still weigh on Europe, Stonehouse says. Moreover, the resumption of US growth went back into the AI theme, and Europe continues to lag in that arena.
Asian markets, however, saw more positive tailwinds through 2025, for macro and micro reasons. Chinese technology stocks benefitted from investors’ desire to diversify while retaining exposure to innovation and AI. Companies in Japan and South Korea started to show stronger growth prospects and resilience to US tariffs as well, driving up their equity markets. Canada has also enjoyed a year of handsome outperformance relative to the US, benefitting from some investors’ shifting preferences away from growth and towards value.
For Stonehouse, and the advisors now watching global markets, the question remains as to whether these global growth trends relative to the US will continue or if the US will resume its leading role in global equities. He stressed the need for clarity on certain fundamental questions. First and foremost is a resolution to the debate over whether the AI theme is a bubble. If the AI theme remains intact, he says, then US outperformance may well resume in the short to medium-term.
At the same time, Stonehouse believes that longer-term prospects for the rest of the world look more intriguing, largely due to a delta in valuations and the likelihood that many of these markets are poised to benefit when the US equity theme inevitably rolls over. Whether that manifests in a short spate of performance or in a longer-term trend, however, will depend on these geographies’ ability to generate long-term growth. Stonehouse argues that in watching for these shifts, advisors need to look at both high level macro narratives and fundamental micro events in specific companies, sectors, and countries.
“Advisors definitely want to stay on top of news flow. and understand what's going on from a macro perspective in the world, because all of these factors can influence what happens with the capital markets. Second, you don't want to get caught in too much of the daily news flow and get caught up in the weeds, because then you might lose sight of the bigger picture, and that's an incredibly tricky balance to strike,” Stonehouse says. “Think about your portfolio balance, and periodically shift and balance so you don’t end up getting caught in one area… This is not so much a question of nailing it, it's not about being the person who identifies the top day of this whole AI theme, it’s more of a question of trying to be in sync with what’s going on.”
