Don’t Forget About International Stocks
As we come to the end of Q1 2025, global markets have shown themselves to be both resilient and flexible, with new policies that have been introduced and the markets’ performance. While the U.S. market continues to recover after reaching correction territory, two major international markets, Germany and China, have shown robust gains, implementing new strategies and policies that could potentially increase growth. In this blog, we want to provide insights into the recent performance and news about these international markets.
Chart 1 Source: ycharts.com
The United States economy has proven its durability in the first quarter despite market volatility, supported by a strong labor market and easing inflation. Still, due to inflation remaining a concern and the new administration's obsession with tariffs, increased prices have been expected. This has led to declining consumer sentiment, which has shown its lowest level since September 2022. Uncertainty hasn’t been the only thing dragging the market down. The S&P 500’s CAPE Shiller P/E ratio (a ratio that measures the cyclically adjusted 10-year moving average of inflation-adjusted earnings to assess a stock's long-term valuation) in December was reading 38.9, which is the third-highest reading since the valuation metric was introduced in 1988. This puts into perspective the U.S. markets' high valuations in direct comparison to German and Chinese equities, with an average CAPE Shiller P/E of 21 and 15, respectively. The market has shown that it is uncomfortable with uncertainty and over-priced equities, leading to a sell-off of the S&P 500 with a peak loss of 10.1% on March 12th.
Chart 2 Source: fred.stlouisfred.org
On the other hand, Germany, Europe’s largest economy, recently approved a €500B fiscal spending package aimed at rejuvenating growth and strengthening national defense and infrastructure. This is a big move for the country as they have historically been conservative with fiscal spending since the repercussions of World War II. It is important to note that this policy came shortly after Trump had stated that the European Union had to start supplementing its own defense as he would be “pausing and reviewing” U.S. military aid to Ukraine despite its struggles with Russia. This fiscal policy stirred the markets and provided the country with new growth opportunities, resulting in the MSCI Germany Index up 20% year-to-date. However, the effects of this stimulus are not entirely set in stone as the broader economy still has looming concerns, such as contraction in the manufacturing and industrial space and cautious business sentiment. Therefore, it will take time to see how this stimulus affects the economy, although this has been the most proactive the country has been (fiscally) dating back to the 1990s.
Meanwhile, China has been showing early signs of recovery after a prolonged slump in both the property sector and consumer confidence. One of the most notable events since its recent breakthrough in Artificial Intelligence (AI) with DeepSeek, [SG1] is that President Xi Jinping held a meeting with a list of top technology executives, namely Alibaba founder Jack Ma, Ren Zhengfei founder of Huawei, and Wang Chuanfu, CEO of BYD. This event created a lot of noise in the markets due to this president’s relationship with technology leaders suddenly taking a turn for the positive. Historically, their relationship hasn’t been the best, with instances regarding regulatory clampdown that resulted in antitrust investigations and a record-breaking number of fines for anti-competitive practices. This sudden turnaround in policy is a gesture of reassurance for investors globally and in the private sector. Due to this, the MSCI China Index has performed exceptionally well, up 18% year-to-date. Although challenges remain in the broader economy regarding youth unemployment and property market issues, China is better positioning itself to reap the benefits of this technology-driven era.
Ultimately, international markets seem to be becoming more attractive from a valuation perspective, especially with the help of innovation-led policies and fiscal stimulus. At the same time, U.S. markets still provide a strong foundation for long-term investing backed by a resilient economy and a strong corporate foundation despite recent market performance and inflated valuations. Once again, the recent market stir-up is a great reminder of why diversification is key for long-term success. We encourage all clients to remain focused on their broader investment goals and feel free to lean on our team at KWB for guidance during volatile times.
~ KWB Team
The information contained herein reflects the opinions of KWB Wealth as of the date of publication and is subject to change without notice. Any forward-looking statements or projections are based on assumptions that may not materialize. Investors should not rely on this information as a sole basis for investment decisions. International investing involves additional risks, including differences in financial reporting, currency exchange fluctuations, political and economic instability, and varying regulatory environments. These factors may contribute to increased volatility and potential losses. Certain information contained herein has been obtained from third-party sources believed to be reliable, but KWB Wealth makes no representation as to its accuracy or completeness. References to specific indexes are for informational purposes only and do not constitute an offer to buy or sell any securities.