A rare double-digit performance gap favoring non-U.S. equities over their U.S. counterparts opened up in early 2025, accompanied by a shift in fund flows away from the U.S. and into Europe, Asia and emerging markets (EM).[1] At the same time, the U.S.’s net international investment position, historically propelled by strong foreign appetite for U.S. stocks and bonds, may be showing signs of reversing,[2] potentially prolonging the weakness in the USD and other U.S. assets. And while U.S. equities are still a sizable 63% share of the global universe, a shift in market leadership may be underway, driven by downward revisions in U.S. growth expectations amid tariff concerns.
Five key takeaways have emerged from equity markets’ behavior so far this year:
1. Historic performance gap between US and non-US stocks
Non-U.S. stocks outperformed U.S. stocks by 10% year to date through April 25, marking the 7th-largest such gap over the last 50 years. As a result, non-U.S. stocks’ weight in the MSCI ACWI Investable Market Index (IMI) sharply reversed the declining path they had followed since the global financial crisis (GFC) in 2008. Having once composed 70% of the global equity universe, non-U.S. stocks’ capitalization weight reached an historic low at the end of 2024. Souring fundamentals and the shock to consumer confidence — even after the 90-day tariff pause — point to continued downside risk for U.S. equities.[3]
From historic lows to Q1 rebound: Non-US equities snap back in 2025

2. Geographic leadership shift from the US may be in the offing
While the U.S. equity market has meaningfully outperformed its global peers for much of the post-GFC era, historical data suggest these cycles can — and do — shift. Over the last five decades, leadership in the home-bias premium (the relative return of a country over the broad market, excluding that country) has rotated multiple times.
Japan’s meteoric rise in the 1970s and1980s (when the U.S. faced stagflation) gave way to Europe’s strength in the 1990s to late 2000s, followed by the resource-driven surge in Australia and Canada throughout the 2000s to early 2010s. More recently, the U.S. assumed the lead following the GFC.
Leadership in the home-bias premium has rotated among countries over time

3. It’s not just the US — home bias is global
Our analysis of approximately USD 10 trillion in ETF holdings across several major domiciles found that investors consistently overweight their domestic equity positions relative to a neutral global benchmark.[4] In the U.S., where wealth advisors and individual investors are the primary users of ETFs, there is about a 15% overweight to domestic stocks. Other markets, particularly Japan, India and China, display even stronger home biases. Consistent with our and others’ research, home bias is often the single largest tilt in equity portfolios.[5]
Holders of US-listed ETFs were 15% overweight in US equities

4. US valuations remain elevated despite April’s pullback
We compared the major regional equity markets — and mega caps, ex-mega caps and small caps in the U.S. market — on several fundamental metrics: return on equity, dividend yield, earnings multiple (P/E), projected real earnings growth and price to projected growth (PEG).
Across all markets we analyzed, U.S. mega caps were still the most profitable and most expensive segment of the global equity universe, even after April’s abrupt market disruption. We found that several European countries boast stronger real earnings growth at comparatively lower valuations (based on PEG ratios) than in the past, and India’s elevated multiples appear more mid-range in the context of its stronger growth outlook.
US mega caps were more profitable, though still pricier, than other markets
5. Continued momentum toward a tripolar world
We applied the MSCI Global Equity Factor Model, anchoring on each market’s fundamentals, to gauge how strongly individual markets are tied to the U.S., Europe and EM, and how these relationships have changed over the last 15 years — that is, long before tariff tensions. In the plot below we compare “regional” betas in 2010 with today.
Since 2010, a shift into more-distinct regional camps has occurred, implying that global diversification benefits may be stronger now than on the heels of the GFC, when many individual markets clustered together, although the U.S. stood apart even then.
For example, Canada’s trade ties had been drawing it closer to the U.S. as well as to Europe. China has become more distinctly EM than other emerging economies, in part because it represents such a large share of the EM market today. Meanwhile, Japan, Australia and Saudi Arabia still straddle all three regions, reflecting their connections to both developed and emerging markets.
Diversification benefits may be stronger now than after the GFC

Is now the time to leave home bias behind?
Taken together, the U.S. market’s recent struggles, the persistence of home bias among asset allocators and individual investors and the renewed opportunities outside the U.S., could signal avenues for investors looking to reassess geographic exposures.