For nearly 15 years, U.S. equities overshadowed their international counterparts, driven by robust earnings growth, valuation expansion and tech dominance. However, the global playing field has begun to even out, as U.S. assets have encountered more risk/strain in a Trump tariff era. As of April 2025, the MSCI EAFE Index outperformed the MSCI USA Index by the largest magnitude in more than 30 years. And the trend continues: As of August 29st, the EAFE Index posted a year-to-date return of 23.31%, while the USA Index trailed at 16.45%.
Even before this performance whipsaw, there was a strong argument to dial back on U.S. stock holdings and adopt a more global portfolio. We could outline all the reasons for a potential rebound in international equities (cyclicality of leadership, lower interest rates/inflation, cheaper valuations), but that has been regurgitated ad nauseum in the media. Instead, we wanted to take a different tact and talk about the rotation at a granular level, outlining some promising international markets that look like bargains in this new cycle.
GLOBAL LEADERS ABOUND IN EUROPE
Europe houses nearly a quarter of the global leaders of industry; yet, many of these companies suffer lower stock prices than U.S. competitors. Why? The European Union was slow to recover post pandemic and a tumultuous geopolitical landscape steered away investment. Belying the moniker, the European “Union” is not a homogenous market; so countries like France can experience political paralysis, while southern Europe sees a buoyant economy. In essence, Europe shouldn’t be pigeonholed into one economic reality.
Today, the attraction lies not just in cheap valuations, but in the fiscal policies being enacted by individual European governments. While the U.S. government is handicapped by rising debts and deficits, European countries still have a fiscal stimulus “lever to pull”, spending billions on military/defense (in response to the Russia-Ukraine conflict) and infrastructure that could accelerate growth and lift GDP.
OH, CANADA
Canada’s real GDP contracted 0.4% in the second quarter of 2025 (annualized basis of 1.6% contraction), as U.S. tariffs limited exports. But Canada has sounded a rallying cry with a domestic agenda: 1) get serious about developing natural resources (mining and energy projects); 2) pump money into housing and infrastructure; and 3) promote patriotism with a “buy Canadian” mantra. The end goal: “catalyzing” $500 billion in private investment over five years, worth about 25% of gross domestic product, according to TD Economics. And the Bank of Canada also cut its benchmark interest rate to 2.5% (as of September 17, 2025) from 5% in 2024, adding to the country’s stimulus efforts.
Today, more than 90% of Canadian goods are entering the U.S. duty-free under the U.S.-Mexico-Canada Agreement, or USMCA, the framework that Trump signed in 2020. But for all other goods not compliant with the countries’ existing free trade deal: a whopping 35%. Stocks of many high-quality Canadian companies are priced accordingly – this is where the opportunity lies, but time is limited as frosty tariff negotiations are thawing. Canada’s stock market is already looking stronger, up 21% in U.S. dollar terms through the first eight months of 2025, kicking it up a notch with lower domestic interest rates and higher demand for raw materials and other tangible assets.
JAPAN’S CORPORATE REFORMS = BETTER EQUITY RETURNS
The Tokyo Stock Exchange reforms, aimed at improving corporate governance and shareholder returns, are fueling a resurgence in Japan’s equities market. We see more and more Japanese companies working to improve financial productivity/corporate efficiency and are becoming more shareholder focused, prioritizing better allocation of capital, potentially driving return on equity and, likely, earnings higher. And since the normalization of interest rates, earnings growth in Japan has kept pace with that of the U.S.
While we don’t overindulge in emerging markets, they certainly have a role to play as many of these countries have faster GDP growth, stronger demographic tailwinds and room for rapid industrialization and tech adoption. And that says nothing for the cheap cost of entry, with best-of-breed companies purchased at steep discounts. But investing in EM is traditionally fraught with political and economic instability, currency fluctuations and limited company transparency; hence the modest allocation.
CHINA INNOVATES, TAKING BUSINESS FROM U.S.
In 2025, the world’s second biggest economy may contain the world’s biggest bargains. Several headwinds (trade frictions with the U.S. and Europe, slow COVID recovery, troubled housing markets and an overabundance of loss-making factories) in China have resulted in historically attractive stock valuations compared with developed-market stocks. The country accounts for more than 30% of global manufacturing, selling some of the world’s most innovative and cheap social media, e-commerce, health care, and automation companies. Though exports to America have plunged, hit by President Donald Trump’s ever-changing tariffs, China’s overall trade surplus is on track to exceed $1 trillion this year, with record-setting shipments to Africa, Asia, Europe and Latin America. At the same time, the Communist Party has launched schemes to promote domestic demand, limit imports and push the country to become a “science-and-technology powerhouse” to combat Western pressures.
One caveat: value traps abound in a country that lacks in transparency. This is where a value investor has to pick and choose among the best stocks, conducting fundamental and boots-on-the-ground research to find those highly liquid and still growing companies – most of which will be aligned with the government’s commercial and policy objectives.
SOUTH KOREA IS BEST PERFORMING ASIAN MARKET IN 2025
I wrote about South Korea earlier in the year, and much of that blog holds evergreen. Following the December 2024 martial law debacle by leader Yoon Suk Yeol, and ensuing market slump, South Korea elected new president Lee Jae Myung. He campaigned on a promise to increase spending, revive consumer confidence and expand export driven sectors like technology and manufacturing. A unified government supported the Corporate Value-Up initiative, where ambitious governance reforms have helped unlock shareholder value after decades of businesses determinedly hoarding cash. On this backdrop, the South Korean stock market has turned a corner, becoming the best performing in Asia in the first half of 2025, with the benchmark KOSPI Composite Index rising 41% since the beginning of the year (through September 26, 2025).
Even though investor interest piqued, South Korea still presents an undervalued investment opportunity, dogged by the phenomenon known as the “Korea discount.” South Korean companies trade at lower prices relative to their intrinsic value than similar businesses in other markets. The main reason is the weakness of shareholder rights in an economy dominated by sprawling corporations known as chaebols controlled by their founding families. But Korean President Lee is trying hard to erase this stigma. As part of the aforementioned Corporate Value-Up mandate, a fleet of new regulations have been introduced: 1) encourage higher dividends, 2) crackdown on stock manipulation, 3) require stock repurchase cancellations, 4) limit controlling shareholder power, 5) and greater oversight from the Financial Services Commission.
Lee formed the KOSPI 5000 Task Force, dedicated to revitalizing the domestic stock market and reaching a KOSPI Index of 5000. The effort involves redirecting investment from real estate (historical wealth preservation and accumulation method for Koreans) and into the Korean equity market. The fruits of the labor are already in evidence: in early 2025, KOSPI sat in around 2400 level or so but has recently reached 3400.
PUBLIC SPENDING REAPS REWARDS IN INDIA
India recently achieved a significant growth milestone by temporarily surpassing China to become the largest weighting in the MSCI Emerging Market Investable Market Index (MSCI EM IMI) in September. That feat reflects the success of Indian companies in translating economic growth into earnings growth and investors’ confidence in future growth.
So where is that future growth projected? India is moving from a lackluster capital spending mandate to an empowered one, where fixed asset investment will focus on infrastructure, especially power generation and distribution. In addition to the stalwart power generators or property companies, tertiary beneficiaries may be manufacturers of cement, steel, ceramic tiles or turbines.
Indian consumers currently have a collective $650 billion in household savings, which is expected to reach $1.1 trillion in five years and $1.7 trillion in 2035. Currently, approximately 70% of household assets are invested in property or stored in gold – rather than the local stock market. So the winners here are the real estate and financial sectors, as both can leverage new cycle gains. Increasing discretionary income will also drive growth across a wide range of consumer products and services.
While many drivers for international investing are macro-related (government stimulus, fiscal deficits, etc.) or event driven (conflicts, energy crises), we remain steadfast in our bottom-up fundamental research. At the end of the day, we seek out companies (in ANY country) with sustainable business models, strong cash flows and great management teams. We believe this unconstrained approach – looking at all geographies and not falling prey to home country bias – makes for a robust portfolio.
This blog was penned by Kenneth Kim, Assistant Portfolio Manager, in September 2025. Mr. Kim joined Polaris as an Analyst in June 2016; he was promoted to Senior Investment Analyst in January 2021 and became an LLC member in January 2022. In January 2025, Mr. Kim was named an Assistant Portfolio Manager, working in cooperation with the portfolio managers on the investment direction of Polaris’ global and international portfolios.
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