Global equity markets finished 2025 higher during all four quarters, the first time since 2017, which, incidentally, was the last time non-US markets outperformed the US. The MSCI World ex USA Index gained 5.2% for the quarter, ahead of the MSCI World ex USA Small Cap Index’s 3.5% return. For the full year, the MSCI World ex USA Index was up 31.9%, helped by a -9.4% decline in the US Dollar Index. Non-US small cap markets also delivered exceptional 2025 performance with the MSCI World ex USA Small Cap Index up 34.1%. International markets haven’t generated this level of outperformance versus the US since 2009, which, maybe less incidentally, marked both the end of the last period of non-US equity outperformance and US dollar weakness.
One data point of non-US outperformance does not make a trend, but one year also does not change the fundamental set-up following the outperformance of US stocks over the prior seven and 15 years. Global markets remain attractive relative to the US on fundamentals with a performance story serving as the base of a new narrative that could drive flows. As discussed a year ago, we believe that 2024 marked the peak in the US equity weights within the global market portfolio. Just as investors may shift their focus from US large caps to small caps, there could be a similar shift from US assets towards Global.
The Trump tariffs are less than a year old, but we are already seeing impacts in global trade flows. Chinese tariffs have, so far, been less severe than initially feared. However, trade diversions are already creating meaningful challenges in the EU, where policymakers are struggling to coordinate an effective response. The Chinese trade surplus recently passed one trillion US dollars, likely leading to additional responses from their trading partners and signaling that domestic consumption remains weak with policy makers unable to figure out an easy solution. We expect the world will continue moving toward two separate economic and, potentially, investment blocs, with the latter likely to be more of an issue for emerging markets than developed.
With regards to interest rates, Japan will remain the odd country out this year. As most of the world continues to ease, the market expects several more rate increases from the BOJ with a very unclear impact on the currency. Despite the risk of a weakening yen, we continue to find (and prefer) very attractive opportunities in businesses serving Japanese domestic demand. Decades of deflation have clearly ended, with businesses discovering pricing power and the resulting margin growth for the first time in decades.
In addition, potential investment flows back into the Japanese markets from overseas provide an optional upside to domestic, but a risk to foreign, equity prices.
Europe presents bottom-up opportunities amongst macroeconomic risks. Excitement early in 2025 regarding government spending in Germany has shown up in some areas of the economy, such as defense, but concerns on energy policy, China trade policy, and more traditional auto and industrial weakness continues. There have been political and budget headwinds in France and the UK and the continent overall has mostly missed out on the booming AI CapEx seen in the US and Asia. Fortunately, it appears many of these risks were already reflected in market valuations and there remain many attractive businesses operating well despite the environment. The EU periphery is still attractive, and the UK market is rich with companies which seem almost abandoned by its domestic investors. By maintaining a long-term focus, exercising patience as others come to recognize the opportunities we see, and benefiting from the embedded upside of economic improvement, we believe we are well positioned. This past year also saw very strong performance in smaller markets like Israel and Latin America. Both regions are seeing changes that could improve their long-term outlooks.
Several investments areas in which we were initially quite contrarian have been discovered. While we expect to maintain exposure, we will also take profits in positions that have performed particularly well. In the year ahead, we will remain disciplined in our proven process—focusing on well-run, high-quality, growing, and profitable businesses trading at attractive valuations.
This represents the views and opinions of GW&K Investment Management and does not constitute investment advice, nor should it be considered predictive of any future market performance. Data is from what we believe to be reliable sources, but it cannot be guaranteed. Opinions expressed are subject to change. Past performance is not indicative of future results.
Indexes are not subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made directly in an index. Index data has been obtained from third-party data providers that GW&K believes to be reliable, but GW&K does not guarantee its accuracy, completeness or timeliness. Third-party data providers make no warranties or representations relating to the accuracy, completeness or timeliness of the data they provide and are not liable for any damages relating to this data. The third-party data may not be further redistributed or used without the relevant third-party’s consent. Sources for index data include: Bloomberg, FactSet, ICE, FTSE Russell, MSCI and Standard & Poor’s.
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Global Equity Market Commentary – 3Q 2025
Global Equity | Insight
Global small caps rose in 3Q2025. Our team favors steady, undervalued companies, choosing to focus on fundamentals over market hype.
Despite starting the quarter with a tariff shock and enduring a thankfully short Iranian conflict, global markets (ex-USA) put up stellar returns for 2Q25.
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Entering February, the outlook for municipal bonds remains favorable: Supply and demand are broadly in balance, credit quality is strong, and tax-equivalent yields are attractive.
Global Equity Market Commentary – 4Q 2025
Global equity markets finished 2025 higher during all four quarters, the first time since 2017, which, incidentally, was the last time non-US markets outperformed the US. The MSCI World ex USA Index gained 5.2% for the quarter, ahead of the MSCI World ex USA Small Cap Index’s 3.5% return. For the full year, the MSCI World ex USA Index was up 31.9%, helped by a -9.4% decline in the US Dollar Index. Non-US small cap markets also delivered exceptional 2025 performance with the MSCI World ex USA Small Cap Index up 34.1%. International markets haven’t generated this level of outperformance versus the US since 2009, which, maybe less incidentally, marked both the end of the last period of non-US equity outperformance and US dollar weakness.
One data point of non-US outperformance does not make a trend, but one year also does not change the fundamental set-up following the outperformance of US stocks over the prior seven and 15 years. Global markets remain attractive relative to the US on fundamentals with a performance story serving as the base of a new narrative that could drive flows. As discussed a year ago, we believe that 2024 marked the peak in the US equity weights within the global market portfolio. Just as investors may shift their focus from US large caps to small caps, there could be a similar shift from US assets towards Global.
The Trump tariffs are less than a year old, but we are already seeing impacts in global trade flows. Chinese tariffs have, so far, been less severe than initially feared. However, trade diversions are already creating meaningful challenges in the EU, where policymakers are struggling to coordinate an effective response. The Chinese trade surplus recently passed one trillion US dollars, likely leading to additional responses from their trading partners and signaling that domestic consumption remains weak with policy makers unable to figure out an easy solution. We expect the world will continue moving toward two separate economic and, potentially, investment blocs, with the latter likely to be more of an issue for emerging markets than developed.
With regards to interest rates, Japan will remain the odd country out this year. As most of the world continues to ease, the market expects several more rate increases from the BOJ with a very unclear impact on the currency. Despite the risk of a weakening yen, we continue to find (and prefer) very attractive opportunities in businesses serving Japanese domestic demand. Decades of deflation have clearly ended, with businesses discovering pricing power and the resulting margin growth for the first time in decades.
In addition, potential investment flows back into the Japanese markets from overseas provide an optional upside to domestic, but a risk to foreign, equity prices.
Europe presents bottom-up opportunities amongst macroeconomic risks. Excitement early in 2025 regarding government spending in Germany has shown up in some areas of the economy, such as defense, but concerns on energy policy, China trade policy, and more traditional auto and industrial weakness continues. There have been political and budget headwinds in France and the UK and the continent overall has mostly missed out on the booming AI CapEx seen in the US and Asia. Fortunately, it appears many of these risks were already reflected in market valuations and there remain many attractive businesses operating well despite the environment. The EU periphery is still attractive, and the UK market is rich with companies which seem almost abandoned by its domestic investors. By maintaining a long-term focus, exercising patience as others come to recognize the opportunities we see, and benefiting from the embedded upside of economic improvement, we believe we are well positioned. This past year also saw very strong performance in smaller markets like Israel and Latin America. Both regions are seeing changes that could improve their long-term outlooks.
Several investments areas in which we were initially quite contrarian have been discovered. While we expect to maintain exposure, we will also take profits in positions that have performed particularly well. In the year ahead, we will remain disciplined in our proven process—focusing on well-run, high-quality, growing, and profitable businesses trading at attractive valuations.
Disclosures
This represents the views and opinions of GW&K Investment Management and does not constitute investment advice, nor should it be considered predictive of any future market performance. Data is from what we believe to be reliable sources, but it cannot be guaranteed. Opinions expressed are subject to change. Past performance is not indicative of future results.
Indexes are not subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made directly in an index. Index data has been obtained from third-party data providers that GW&K believes to be reliable, but GW&K does not guarantee its accuracy, completeness or timeliness. Third-party data providers make no warranties or representations relating to the accuracy, completeness or timeliness of the data they provide and are not liable for any damages relating to this data. The third-party data may not be further redistributed or used without the relevant third-party’s consent. Sources for index data include: Bloomberg, FactSet, ICE, FTSE Russell, MSCI and Standard & Poor’s.