The year 2025 proved to be exceptional for stock markets worldwide, with international stocks substantially outperforming those in the United States. The MSCI All Country World ex-USA index, which represents performance of equities outside the US, surged by 29.2%, far surpassing the S&P 500's 16.39% gain.
Several factors contributed to this global outperformance, starting with the escalating influence of artificial intelligence (AI) across Asian markets. Tech companies and chip manufacturers throughout the region, including South Korea, Taiwan, Japan, and China, experienced elevated demand and investor interest linked to AI innovation and adoption. South Korea's Kospi index exemplified this trend, posting an extraordinary gain near 76%, the most substantial leap since 1999. Similarly, Japan's Nikkei 225 advanced 26%, propelled predominantly by strong performances in technology and semiconductor stocks.
Within Japan, memory chip producer Kioxia saw an extraordinary stock price increase of 536%, underscoring the AI trade's significant impact on semiconductor sectors. South Korean tech powerhouse Samsung Electronics' shares also gained nearly 130%, reinforcing the region's tech-driven market momentum. Taiwan Semiconductor Manufacturing Company (TSMC), a key player in global chip fabrication, recorded a 46.54% rise, reaching record levels. Meanwhile, Chinese technology conglomerate Alibaba's shares climbed 75.81%, buoyed by the company's strategic embrace of AI technologies including the launch of a proprietary chatbot.
Complementing the Asian strength, European markets benefited from increased government commitments to defense and improving economic outlooks. The German government's historic reforms involving enhanced defense spending invigorated the market, with defense manufacturers such as Rheinmetall seeing stock price increases surpassing 150%. These developments respond to assessments highlighting deficiencies in Germany's military capabilities at a critical moment for European security concerns.
Additionally, economic improvements in countries like Greece, Spain, and Poland contributed positively to regional stock exchanges. Banking institutions, notably Santander and Deutsche Bank, experienced substantial stock appreciations around 126%, adding to overall market gains. Major European indices reflected these advances: Spain's IBEX 35 rose 49%, marking the best performance since 1993; Italy's FTSE MIB appreciated by nearly 32%, its strongest year since 1998; Germany's DAX gained 23%; Greece's ATHEX Composite added 44%; and Poland's WIG increased by 47%.
Investor interest in Poland was highlighted by the combination of growth potential and attractive valuations, driven partly by recovering economies in southeastern Europe. Greece's resurgence from a protracted debt crisis has earned it a restored investment-grade rating and a tourism-driven economic upswing. The United Kingdom’s FTSE 100 also experienced significant appreciation, increasing over 21.5% and reaching record highs exceeding 10,000 points in early 2026.
Underlying much of the non-US gains was a weakening US dollar, which depreciated approximately 9.4% against a basket of six major currencies—its steepest decline since 2017. A weaker dollar effectively increases the value of foreign investments when converted back into US dollars, providing a currency tailwind that enhanced returns for US investors holding international assets.
At the beginning of 2025, US equities were characterized by relatively elevated valuations compared to global peers, prompting investors to seek alternative arenas for growth opportunities. Analysts noted a confluence of factors that created favorable conditions for international stocks, including fiscal stimulus policies in Europe and AI-related expansion in Asia.
Michael Reynolds, an investment strategy expert, commented that, following years of subdued fundamentals, international markets demonstrated a robust year of earnings growth in 2025. He emphasized the dual forces of fiscal stimulus in Europe and AI-driven momentum in Asia as central elements supporting this performance.
Despite the international surge, many market experts remain cautiously optimistic about US equities, citing resilient corporate profitability and ongoing AI-related innovation as drivers for continued earnings expansion. Some investors predict the US dollar will stabilize, potentially moderating the currency advantage that bolstered emerging and developed market equities abroad.
Global equity strategists advocate maintaining a diversified approach, balancing US market exposure with select foreign investments to capture growth while mitigating localized risks. Morgan Stanley's chief investment officer highlighted the surprising strength of emerging market equities and suggested that shifting geopolitical, monetary, and fiscal trends, combined with technological advancements and developed market debt pressures, reinforce the value of international diversification for long-term investors.
Looking ahead, the trajectory of the US dollar will play a pivotal role in determining the relative performance of international equities for US-based investors. Continued dollar weakness could further enhance returns from overseas markets, while stabilization or appreciation of the dollar might temper this effect.
In summary, 2025's equity markets presented a compelling narrative of global outperformance driven by technological innovation, governmental policy shifts, and currency movements. These trends have prompted investors to reevaluate allocations, blending domestic and international strategies to optimize portfolio resilience and capitalize on diverse growth drivers.