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US stocks have been eclipsed by market gains in the rest of the world in 2025, as worries about high valuations, a Chinese artificial intelligence breakthrough and Donald Trump’s radical economic policies contributed to a rare year of underperformance for Wall Street.
The S&P 500 is up 18 per cent this year, undershooting the 29 per cent gain for the MSCI All Country World ex-US index by the widest margin since the global financial crisis in 2009.
Wall Street’s artificial intelligence boom has powered a rebound from the sell-off sparked by Trump’s “liberation day” tariff blitz in April.
But the lingering effects of the president’s trade war — as well as anxieties over sky-high US tech valuations — have led many investors to question the dominant position in global portfolios long enjoyed by US stocks.
“US equities are more expensive than lots of other equities, the growth trajectory is likely to be challenged, and everyone’s got lots of them,” said Matthew Beesley, chief executive of Jupiter Asset Management, describing his approach to equity investing in 2026 as “anything but America”.
“That is a great time to think about anything [investors] haven’t got lots of,” he added.
Indices in China, Japan, Germany and the UK have outperformed the S&P as relatively unloved markets made a comeback, while an MSCI gauge of emerging markets has climbed nearly 30 per cent, boosted by a weaker dollar.
“There is a need to diversify risk,” said Niamh Brodie-Machura, chief investment officer for equities at Fidelity International. “Many of the investors I talk to are examining their geographical allocations in light of the big-picture events of the past year.”
Asian stock markets have been among the strongest performers, buoyed in part by Chinese start-up DeepSeek, which raised the prospect of serious competition to US AI with its large language model breakthrough in January.
The MSCI China is up more than 30 per cent, while Hong Kong’s Hang Seng has climbed almost 28 per cent.
US chipmaker Nvidia dropped 17 per cent on a single day following the release of a DeepSeek model whose performance rivalled those of US competitors but at a lower cost, prompting investors to question whether vast investment in AI infrastructure was necessary.
Although Nvidia stormed back to become the world’s first $5tn company in October, nagging doubts about AI valuations have hit the US market, fuelling a sharp November sell-off.
“The reason we lost that exuberance [about US stocks] was really in January . . . DeepSeek day,” said Helen Jewell, chief investment officer for fundamental equities at BlackRock. “You had that sudden realisation that ‘too overweight the US’ was not the way to build a portfolio.”
Global investors have also warmed to Chinese equities this year. Mislav Matejka, head of global and European equity strategy at JPMorgan, said that the bank “fully flipped” to an overweight position on China this year following signs of economic resurgence.
South Korea’s Kospi index has soared more than 75 per cent this year, with the index’s tech heavyweights Samsung and SK Hynix up 124 per cent and 268 per cent respectively.
European stocks, too, enjoyed a boost prompted by hopes of economic growth emerging from Germany’s “whatever it takes” fiscal stimulus package, which most investors expect to kick off in earnest next year.
Germany’s Dax has outperformed the S&P 500, while strong economic growth has driven Spain’s Ibex 35 up 48 per cent and the Greek Athex index up 44 per cent.
“For years, the US was the only story in town,” said JPMorgan’s Matejka. Now, he said, investors should be positioning for this “broadening of performance internationally”.