Feb 3, 2026
For the first time since 2022, international stocks blew past the U.S. market in 2025.
The MSCI EAFE Index, which tracks stocks in developed markets outside the U.S. and Canada, returned roughly 32% last year, while the MSCI Emerging Markets Index climbed about 34%. Both easily topped the S&P 500, which represents the top 500 U.S. companies, as it finished the year with gains of nearly 18%.
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After years of U.S. domination, especially in big tech, this deep shift may have investors wondering if it’s time to diversify beyond America.
“Nearly every investor that we speak to could probably benefit from adding some international allocations,” Kristy Akullian, chief of iShares investment strategy for the Americas at BlackRock, told CNBC (1).
Why international markets outperformed in 2025
A few big forces lined up in favor of foreign stocks last year.
Economic growth outside the U.S. shot up, especially in parts of Asia and Europe. Emerging economies like China and India expanded faster than the U.S., and Europe benefited from fiscal stimulus and increased defense spending.
For one, the artificial intelligence (AI) boom spread far and wide beyond Silicon Valley. Chipmakers and tech firms in Asia saw rising demand as AI investment went up worldwide, reports CNN (2). Asian markets rode that momentum as key links in the AI supply chain.
Another factor was that the U.S. dollar index fell over 9% in 2025, its worst year in nearly a decade. When the dollar declines, returns from foreign investments translate into more dollars when converted back, giving international stocks an extra boost.
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“A lot of things went right for international stocks in 2025,” Michael Reynolds, vice president of investment strategy at wealth management firm Glenmede, told CNN.
American investors focused on the S&P 500 are heavily concentrated in tech companies tied to AI, with over one-third of the index weighted toward tech stocks, increasing exposure risk. Meanwhile, international stocks offer exposure to different economies, sectors and currencies, and this diversity can help smooth returns over time.
Of course, there’s no guarantee 2025’s trend will continue, so while adding international exposure might be a strategy there are some risks to keep in mind:
- Emerging markets are more volatile, and inherently come with more risk
- Currency trends can reverse and if the dollar strengthens again, it could erase some gains
- Chasing performance after a strong year can backfire if the momentum fades
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Adding international exposure
If you’re thinking about diversifying, here are a few things investors may want to consider first.
Decide how much is right for you: How much international exposure is dependent on your situation. If you’re younger with potentially decades to ride out market swings, you might be more comfortable taking on more, but if you’re a retiree you may prefer a lighter touch.
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Stability vs. growth: Developed markets like Europe and Japan tend to be more stable. Emerging markets can potentially offer faster growth but come with sharper ups and downs. Some investors split the difference and hold a mix of both.
Consider broad funds: Low-cost international index funds or ETFs can give you global exposure in a single move.
Don’t forget currency: Currency swings make a difference. Some funds hedge against them to smooth returns, but the protection that offers can also limit gains.
Trying to predict market winners is tough, but building a portfolio that doesn’t put too much weight on any one country, sector or trend can help manage risk over time. For investors who are concentrated in U.S. tech, a balanced dose of international exposure could help reduce risk, but any big portfolio changes are best made with a long-term plan.
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Jessica is a freelance writer with a professional background in economic development and small business consulting. She has a Bachelor of Arts in Communications and Sociology and is completing her Publishing Certificate.
