Global Diversification Paid Off for U.S. Investors

Global diversification proved to be a winning strategy for American investors in 2025. While the weakening U.S. dollar played a role, it was far from the only factor driving strong returns in international equity markets.

The MSCI All Country World ex-U.S. Index, which captures roughly 85% of the global equity opportunity set outside the United States, delivered a return of about 33% for U.S.-based investors. By comparison, the S&P 500 gained approximately 18% over the same period.

Why Currency Movements Matter—but Don’t Tell the Full Story

When investing abroad, returns are influenced by two key components. First is how much an asset rises in its local currency. Second is how that currency performs relative to the U.S. dollar.

In 2025, the dollar declined roughly 9% against a basket of major currencies, according to market data. As a result, foreign stocks became more valuable in dollar terms, amplifying returns for U.S. investors.

Concerns about U.S. fiscal stability and political uncertainty fueled widespread discussion of “de-dollarization.” These same worries helped lift not only foreign equities, but also alternative assets such as gold and cryptocurrencies.

Strong Foreign Equity Performance Went Beyond Currency Effects

Still, the dollar’s decline alone does not explain the magnitude of gains outside the U.S. According to global equity strategists at Goldman Sachs, most major international markets would have outperformed the S&P 500 even without favorable currency movements.

Japan’s MSCI index returned about 25% to U.S. investors in 2025, despite the yen remaining largely flat against the dollar. South Korea’s benchmark surged nearly 100% on a dollar-adjusted basis. Meanwhile, Spain’s equity market posted gains exceeding 60% in euro terms, even before accounting for currency appreciation.

Valuations and Earnings Fueled the Rally

A major driver behind international market strength was a sharp rise in valuations. Global investors became willing to pay more for each dollar, euro, or yen of earnings.

According to Goldman Sachs, the valuation gap between U.S. stocks and the rest of the world narrowed by nearly one-third through mid-December 2025. Even so, U.S. equities continued to trade at more than double their historical premium compared with international peers.

Global Allocation Strategies Are Shifting

Some market strategists now expect further normalization. Yardeni Research recently noted that maintaining an “overweight” position in U.S. stocks no longer makes as much sense as it once did.

Non-U.S. equities remain cheaper on a forward price-to-earnings basis, while global corporate earnings have shown notable resilience. As Yardeni summarized, globalization is far from over.

For broader macroeconomic context, see MB Daily News’ analysis of the United States economic outlook for 2026 .

Diversification Within Technology Is Also Increasing

Although financial institutions dominate the MSCI ex-U.S. index by sector, the largest individual holdings are global technology leaders. These include Taiwan Semiconductor Manufacturing, ASML, Alibaba, Tencent, and Samsung Electronics.

Importantly, technology stocks are no longer moving in lockstep. According to Goldman Sachs strategist Peter Oppenheimer, correlations within the sector declined in 2025. As a result, selecting individual winners has become more challenging, reinforcing the value of diversification.

What the U.S. Dollar Trend Signals for 2026

Looking ahead to 2026, the dollar, global earnings growth, and valuation trends may all shift. However, it is unlikely that every factor will reverse at the same time. This diversity of drivers is precisely what makes global diversification effective.

Illustrative View: Year-to-Year Changes in the U.S. Dollar

The chart below illustrates the general direction of the U.S. dollar over recent years, highlighting its decline in 2025 relative to earlier periods.

Note: Chart values are illustrative and intended to show directional trends, not exact index levels.

Professional Insight for Investors and Businesses

As investors and companies reassess global exposure, understanding valuation dynamics across markets has become increasingly important. For organizations seeking independent, data-driven analysis, professional valuation services can provide critical insight into cross-border investments and strategic planning.

MB Daily News provides independent financial journalism and analysis. This article is for informational purposes only and does not constitute investment advice.