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Is 2025 the Year to Invest in International Stocks? | The Motley Fool

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  Published in Stocks and Investing on Sunday, October 19th 2025 at 6:56 GMT by The Motley Fool
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Is 2025 the Year to Invest in International Stocks? A Comprehensive Look

The global equity landscape in 2025 is reshaping the way investors think about diversification. A recent article on The Motley Fool dives deep into why many financial experts are turning their eyes away from U.S. markets and toward international opportunities. Below is a detailed synopsis of the key takeaways, broken down into macroeconomic trends, specific region highlights, investment vehicles, and the risk‑reward calculus that frames the discussion.

1. The Macroeconomic Environment

A. Slowing U.S. Growth and Tightening Monetary Policy

The United States remains in the throes of a policy tightening cycle, with the Federal Reserve raising rates several times since the pandemic lows. While this has helped temper inflation, it has also dampened corporate earnings growth and pushed the S&P 500 toward a valuation stretch that many analysts consider unsustainable. The article points out that the Fed’s forward‑guidance suggests further rate hikes could come in the next 12–18 months, potentially compressing U.S. equity returns even more.

B. Rising Yields on U.S. Treasuries

Treasury yields are on an upward trajectory. As the yield curve flattens and, in some cases, inverts, investors are re‑evaluating the risk‑adjusted returns of riskier assets. The article references data from the U.S. Treasury Department and includes a chart showing the 10‑year Treasury yield’s climb from 1.4% in early 2024 to 4.3% by mid‑2025.

C. Global Economic Disparities

Internationally, the article contrasts the U.S. scenario with a more mixed picture. The eurozone is experiencing a moderate rebound, driven in part by the European Central Bank’s (ECB) dovish stance relative to the Fed. Emerging markets, on the other hand, show resilient growth driven by commodity exports and domestic consumption. A highlighted source—The Economist’s “Global Growth Outlook”—provides a 2.8% forecast for the OECD economies versus 3.4% for emerging markets, underscoring the potential upside in the latter.

2. Why International Stocks May Outperform

A. Lower Valuations

One of the article’s core arguments is that global equities are trading at a discount to U.S. stocks. The MSCI World Index is roughly 10–12% cheaper than the S&P 500 on a P/E basis. The article cites a recent Morningstar report, which shows the average P/E of European equities at 17 versus the U.S. at 22, and emerging markets at 15.

B. Higher Interest Rate Growth Potential

Because many international economies are still catching up on infrastructure and industrial capacity, the growth in earnings and thus valuations can be more pronounced if global rates rise in a way that supports business expansion. The piece includes a link to a Bloomberg analysis that outlines how countries with higher debt‑to‑GDP ratios may benefit from rising rates if those rates are matched by higher GDP growth.

C. Currency Dynamics

The U.S. dollar has weakened from its 2022 highs, creating a natural hedge for investors in international stocks. The article examines the USD/EUR and USD/CNH (Chinese Yuan) pairs, noting a 3% depreciation of the dollar against both currencies over the past year. This depreciation boosts the dollar‑denominated returns of foreign equities when converted back to the investor’s home currency.

3. Regional Highlights

A. Europe

• Germany and France: The article underscores the stability of Germany’s export‑heavy economy and France’s robust consumer base. German firms are expected to benefit from the EU’s Green Deal, with a projected 3% increase in renewable energy sector revenues.
• United Kingdom: Despite post‑Brexit uncertainties, the UK’s tech and finance sectors are projected to grow at a 4% CAGR over the next five years, according to a Financial Times analysis.

B. Asia-Pacific

• Japan: With its aging population, Japan’s domestic market is under pressure, but the article highlights the country’s leading role in robotics and high‑tech manufacturing, which could offset demographic headwinds.
• China: The Chinese market remains a mixed bag. While the policy environment has become more favorable for technology and consumer goods, the article cites a Wall Street Journal piece that notes regulatory uncertainties could pose a risk. Nevertheless, the article argues that the country’s domestic consumption is growing faster than its GDP, offering upside potential.
• India: Emerging markets fans often point to India as a growth engine. The article references a Forbes interview with an Indian equity analyst who sees a 7% CAGR in India's domestic consumption over the next decade.

C. Emerging Markets

The article places a special emphasis on Brazil, South Africa, and Vietnam. These countries are benefiting from commodity booms, rising infrastructure spending, and increasing urbanization. The International Monetary Fund’s 2025 country reports predict solid growth for each of these economies, providing a “sweet spot” for risk‑tolerant investors.

4. Investment Vehicles

A. Global Index ETFs

The article lists several ETFs that investors can use to gain diversified international exposure:

Each of these funds provides a low‑cost way to tap into different segments of the global market. The article links to the fund fact sheets for a more granular view of holdings and sector weightings.

B. Sector‑Specific ETFs

For investors looking to bet on specific growth themes, the article suggests:

• XRE: Real Estate (global) – useful for tapping into Japan’s and China’s real‑estate cycles.
• XLF: Financials (global) – includes European banks and emerging‑market insurers.
• XLV: Healthcare (global) – covers pharmaceutical giants in Europe and biotechnology firms in the U.S. and Asia.

C. Currency‑Hedged Options

The article warns that currency swings can erode returns. It recommends investors consider currency‑hedged versions of these ETFs for a more stable risk profile. A link to a MoneyControl article explains the mechanics of currency hedging and its cost implications.

5. Risks and Mitigating Strategies

A. Geopolitical Tensions

The ongoing Russia‑Ukraine conflict, South China Sea disputes, and U.S.‑China trade tensions all loom as potential catalysts for market volatility. The article references a Reuters briefing that highlights how the U.S. sanctions on Russian oil have already caused a ripple effect across European energy markets.

B. Regulatory Risks

Emerging markets are especially susceptible to sudden policy shifts. The article cites a WSJ feature that discusses how Brazil’s tax reforms could reshape the corporate tax landscape overnight, affecting returns for equity investors.

C. Currency Volatility

While the dollar’s depreciation offers a natural hedge, sudden reversals can cause sharp adjustments. The article suggests that investors with a long time horizon should stay invested, while those with short‑term goals might consider dollar‑denominated holdings or hedged ETFs.

D. Liquidity Concerns

Certain emerging‑market ETFs can experience lower liquidity than their developed‑market counterparts, leading to wider bid‑ask spreads. The article advises checking the average daily volume before committing a significant portion of a portfolio to these funds.

6. Take‑away Recommendations

1. Diversify Beyond the U.S.
   A 50/50 allocation between U.S. and international equities can provide both growth and risk mitigation, especially in a tightening monetary environment.

2. Prioritize Low‑Cost Global Index Funds
   VEU and ACWX are highlighted as the most cost‑efficient vehicles for broad exposure, with EEM as an optional allocation for higher risk‑return trade‑offs.

3. Consider a Regional Rotation
   An investor could allocate 40% to developed markets (Europe, Japan, UK) and 20% to emerging markets, adjusting based on economic data releases and geopolitical developments.

4. Manage Currency Exposure
   For those uncomfortable with currency swings, a hedged ETF or a currency overlay strategy can smooth returns over time.

5. Stay Informed and Flexible
   Regularly review macro data and risk indicators. The article links to a Bloomberg market calendar that provides real‑time updates on central bank announcements, commodity price changes, and geopolitical news.

7. Final Thoughts

The Motley Fool article paints a compelling picture: 2025 could well be a watershed year for international equities. While U.S. markets face higher valuations and tightening monetary policy, many international markets offer more attractive P/E ratios, higher growth prospects, and favorable currency dynamics. By employing a diversified portfolio of low‑cost ETFs, staying mindful of geopolitical and regulatory risks, and actively managing currency exposure, investors can position themselves to capture upside while mitigating downside in an increasingly complex global financial environment.