Last year marked a year of exceptional dispersion in global equity markets, with the performance gap between the best- and worst-performing country indices reaching approximately 105%. This wide range underscored the significant value of active management, which enabled Morningstar to sidestep underperforming regions while capitalising on attractive mispricing opportunities and high-conviction ideas. Early in 2025, Morningstar highlighted South Korea as particularly compelling due to its attractive valuations and exposure to technology and semiconductor leaders benefiting from global AI demand. The funds were positioned accordingly and participated substantially in South Korea’s near-100% total returns over the full year, one of the strongest performances across regions and sectors globally.
Table 1: MSCI Indices Total Return in USD. Source: Fintax Research & MSCI.
Global capital flows favored ex-US markets throughout much of the year, with strong inflows into emerging markets and Europe driving outperformance in many regions. Despite this rotation, the US equity market still delivered approximately 17% return for the calendar year. The US remains the dominant global equity market, accounting for roughly 64% of the MSCI All Country World Index (ACWI), underscoring its enduring weight in diversified portfolios.
Chart 1: Global equity market share. Source: TopDown.
Even after last year’s relative outperformance by international markets, several key regions; particularly in Europe and emerging markets, continue to trade at attractive valuations relative to historical norms and the broader global opportunity set. Morningstar maintains conviction in select positions, including South Korea, and the UK, which offer compelling risk-reward profiles driven by undervaluation, improving fundamentals, and sector-specific tailwinds.
Table 2: 12 month forward Price to Earnings (P/E) ratios. Source: Fintax Research & MSCI.
Looking ahead, estimated forward 12-month returns for the MSCI ACWI currently stand at 6.9%, reflecting a more moderate but still positive outlook for global equities. Among the country indices we track, Brazil, Mexico, South Korea and the UK currently present the highest potential risk-adjusted return opportunities, supported by attractive valuations, cyclical recovery potential, and favorable earnings prospects, with varying degrees of associated risk.
Table 3: Estimated 12 month USD returns calculated as 12 months forward earnings yield + dividend yield.
Source: Fintax Research & MSCI Indices.
Morningstar’s active strategies remain well-positioned to navigate this environment by focussing on mispriced opportunities; such as select sectors like US healthcare and consumer staples showing signs of undervaluation, while maintaining exposure to high-conviction international markets.