Stocks in Europe present the most promising opportunities at present.
In 2025, the global equity market is experiencing robust growth, particularly in international markets outside the US. Europe, China, and parts of Asia are leading the charge, while sector leadership remains in technology, energy, and communications services.
Europe has emerged as the top performer among major regions, with falling interest rates, strong corporate earnings, and increased defense and infrastructure spending driving its returns. Countries like Germany, Spain, and Poland have posted impressive gains. The strength of Europe's equity market was partly fueled by defense stocks, aligning with increased government defense budgets.
China equities have seen a significant rise, with gains of approximately 30-32% over the past year. Despite tariff and macroeconomic challenges, China is regaining investor attention. The MSCI China Index is trading at a discount to the US market, offering upside potential.
The Asia Pacific markets show mixed performance. Japan has had a solid year, South Korea surged with 43% gains, while India has weakened somewhat. Emerging markets in Latin America, such as Mexico and Brazil, have rebounded strongly, helped by a weakening US dollar and lower valuations.
The US market is more narrowly focused on expensive tech-heavy companies, raising concerns among investors due to high valuations and policy uncertainty. However, US AI and tech capex remain dominant and strong drivers of growth.
Looking ahead, the recovery in GDP and business activity is strong in the Eurozone and China. Purchasing manager indices are rising, particularly in the services sector in Europe. The Chinese central bank has already taken action, including a 50 basis point cut in the banks' reserve requirement ratio, and further supportive measures are expected in the coming months.
However, a higher degree of caution regarding China is warranted due to potential profits on individual values that have performed strongly so far this year. Beijing's increasing regulatory interventions could threaten China's growth. China's industrial production, retail sales, and the construction sector are below their three-year averages.
European stocks are likely to benefit from the upward trend in real bond yields. European stock indices have a larger weighting of value stocks such as financials, which tend to outperform in a rising real yield environment. European retail sales are already above the pre-pandemic trend, and mobility indicators have returned to pre-pandemic levels.
The US stocks appear expensive with an average P/E ratio of 21.5. A further increase in corporate profit growth in the US this year is unlikely unless GDP growth forecasts are revised upwards. The view on the Eurozone has been upgraded to overweight by Pictet Asset Management, with business activity picking up at its fastest pace in 21 years.
In summary, the global equity landscape in 2025 is marked by solid outperformance in international equities, especially Europe, China, and select emerging markets, while sector leadership remains with tech, energy, and communications. The US market is relatively expensive and narrowly concentrated, prompting diversification interest toward other regions and sectors.
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