Foreign stocks just had their best year against Wall Street

Americans who put money in foreign stocks last year did way better than those who stayed within the home market. An exchange-traded fund tracking the MSCI all-country world ex-U.S. index brought in roughly 33% returns to U.S. investors in 2025.

The index covers 85% of stock investments available outside America. The S&P 500 returned about 18% over the same period.

Two things matter when you invest overseas. How stocks perform in their local markets, and what happens with the dollar. When the dollar gets weaker, your foreign holdings are worth more dollars back home.

The dollar dropped around 9% last year against a basket of other currencies, FactSet data shows. That helped pump up returns.

“De-dollarization” was everywhere in 2025. Concerns about U.S. government spending and political turmoil sent investors looking elsewhere. Foreign stocks got attention. So did gold and crypto.

Foreign markets beat U.S. without currency help

Currency moves don’t tell the whole story, though. Goldman Sachs analysts had pushed clients toward global diversification in 2025. They broke down major market performance using four measures: earnings growth, valuations, dividends, and currency shifts.

Almost every major index they studied beat the S&P 500 through mid-December, even without currency gains. France’s CAC 40 was the exception.

Japan’s MSCI index returned around 25% in 2025 despite the yen staying flat against the dollar. South Korea’s benchmark soared about 100% in dollar terms. Spain’s index climbed more than 60% in euros alone.

Valuations drove a lot of this, Goldman Sachs found. Investors paid more for each unit of earnings in these markets.

Take the price-earnings-growth ratio. The gap between U.S. and international PEG ratios narrowed by almost a third through mid-December 2025, according to Goldman Sachs. American stocks still traded at a premium. By mid-December, that premium stood at more than double the average since 2005.

Some analysts expect the gap to keep closing. Yardeni Research recently said it “no longer makes much sense” to recommend clients “overweight” U.S. stocks. The firm had given that advice since 2010. International stocks look cheaper based on forward price-to-earnings ratios. Plus, corporate earnings globally have stayed solid.

“It’s a big world with many countries having large populations that aspire to a better standard of living. Globalization isn’t dead,” Yardeni Research wrote.

Tech stocks still dominate overseas indexes

Banks and financial companies make up the biggest chunk of the MSCI all-country ex-U.S. benchmark. But here’s something interesting – the top five individual stocks are all tech companies. Taiwan Semiconductor Manufacturing, the Netherlands’ ASML, China’s Alibaba and Tencent, and Korea’s Samsung Electronics.

Does this mean international stocks don’t really diversify away from America’s tech-heavy market? Peter Oppenheimer, Goldman’s chief global equity strategist and head of macro research in Europe, says not necessarily. Tech stocks started moving more independently in 2025, he noted. Picking winners got riskier because you’re more likely to pick a loser.

“What you should be doing is seeking more diversification within tech,” Oppenheimer says.

Nobody can predict what 2026 will bring. Maybe the dollar strengthens. Foreign earnings could stumble. U.S. valuations might shift. But the odds of everything moving together are slim. That’s the whole point of spreading bets globally – the advantages come from different directions.

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