November 2025
International trends: Staying vigilant and diversified
The strong outperformance by international equities year-to-date (YTD) has reignited investors’ interest in the asset class. We have always maintained that exposure to non-U.S. markets is crucial to maintaining well-diversified portfolios, while serving as the gateway to a large opportunity set. After years of U.S. economic and market exceptionalism, non-U.S. equities have taken center stage this year. The MSCI International Developed Index (EAFE) has outperformed the S&P 500 by 11.2 percentage points, while the MSCI Emerging Market Index (EM) has beaten the S&P by 15.7 percentage points1 (in U.S. dollar terms).
This outperformance has been driven by a few favorable dynamics:
- Improving fundamentals, ranging from supportive fiscal policies out of key countries like Germany and China, to narrowing economic growth differentials between the U.S. and other international developed economies.
- An investor rotation into cheaper asset classes. At the end of 2024, the MSCI All-Country Index excluding the U.S. was trading at a 40% discount to the S&P 500 based on price-to-earnings (P/E). Concerns about the impact of spending cuts and tariffs on U.S. consumers and businesses were at the core of this rotation, which was also supported by the improving fundamental backdrop abroad.
- The dollar’s decline has amplified returns. For U.S.-based investors, a weaker dollar boosts the value of international investments in dollar terms. Without the ~9% drop in the U.S. dollar index YTD, international equity indexes would have boasted a less impressive outperformance.
Following such a strong run in both EAFE and EM markets—and with the dollar likely stabilizing for now—further outperformance by both EAFE and EM markets lies more squarely on continued fundamental improvements. On this front, we see encouraging signs but also reasons for caution.
In this CIO Perspectives, we provide a brief overview of what we are focusing on across key international economies.
Author
Niladri ‘Neel’ Mukherjee
TIAA Wealth Management Chief Investment Officer
Author
Alberto Favalli-Ragusini
TIAA Wealth Management Director, Investment Strategist
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1 Performance as of October 27, 2025.
This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.
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