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With so much frenzy over everything from an AI bubble to a US sovereign wealth fund, many investors may not have realized that the best returns can’t be found here in the US.
Emerging markets and international stocks have been outpacing domestic equities in 2025, subverting a long-held tradition of American stock market dominance.
Just take a look at the numbers: The MSCI Emerging Markets Index has gained 31% this year, while the Vanguard Total International Stock Index has surged 21.5%—both outpacing the S&P 500’s return of 9.93%.
The biggest reason that international markets have universally popped is that the dollar has weakened, declining 9.45% this year when compared to a basket of international currencies. That makes foreign companies more valuable when compared to American ones.
On top of that, emerging markets (EM) in particular have been on a serious tear:
“We think that, post-Covid, EM central banks have garnered more trust, showing that they can act independently, preemptively, and effectively in the face of shocks,” wrote Morgan Stanley strategist Simon Weaver in a note over the weekend. “In addition, flexible exchange rate regimes have absorbed external pressures, while inflation differentials with DM [domestic markets] have converged.”
Say bonjour to investing abroad
If you ask the pros, they’re still pretty bullish on investment ideas across the pond.
“International equities could help diversify investment portfolios given the prominence of sectors such as financials and industrials (i.e., not tech) outside the US,” explained Janus Henderson strategist Julian McManus in a note today. “As the US turns inward, countries are stepping up with stimulus, which will benefit companies critical to local economies,” he added.
But taking out your globe and pointing to a random country probably isn’t the best way to start.
“Within our framework, which strongly emphasizes country-specific opportunities, we currently have a preference for local bonds in Brazil, Colombia, Hungary, and Turkey and like stances on select sovereign credits including Chile, Colombia, Guatemala, Mexico, Morocco, South Africa, and Zambia,” explained Weaver.
Safe travels!—LB