International stocks are gaining traction as they outperformed the S&P 500 for the first time in years, with the iShares Core MSCI Emerging Markets ETF (IEMG) delivering a 32% return in 2025 compared to the S&P 500’s 18%. This shift is attributed to improved earnings outlooks and attractive valuations, making a compelling case for diversifying portfolios into international markets.
The International Monetary Fund (IMF) forecasts emerging markets will grow by 4.2% in 2026, significantly outpacing the U.S. at 2.4% and developed markets at 1.8%. Additionally, emerging markets are currently trading at a historically wide discount, with a forward P/E ratio of 12 compared to 20 for the S&P 500. This deep-value opportunity, combined with a potential weakening dollar and a favorable global macroeconomic backdrop, suggests that the conditions for sustained outperformance may finally be aligning.
Market professionals should consider the implications of this shift; investing in emerging markets could provide substantial returns as economic growth and valuations converge, potentially unlocking value that has been dormant for years.
Source: fool.com