Why the Next 20 Years May Belong to Non-U.S. Stocks: A Strategic Guide for Global-Minded Investors

In a time of economic uncertainty and political recalibration, U.S. investors might feel hesitant to look beyond familiar borders. But if you’re focused on long-term portfolio growth, there’s a compelling reason to rethink that instinct: high-quality non-U.S. stocks may very well outperform their American counterparts over the next two decades. Backed by favorable demographic trends, policy shifts, and valuation advantages, international equities—especially in emerging markets—present a strategic opportunity that forward-looking investors shouldn’t ignore.

The Shift Toward Economic Fragmentation: A New Global Order

On April 2, 2025, the United States announced sweeping tariffs on imports from a broad swath of global trade partners. While some of these tariffs have been deferred until July and negotiations are ongoing, the message is clear: globalization as we once knew it is being reshaped. With trade policy in flux and geopolitical uncertainty on the rise, many investors might see this as a cue to pull back. However, the current environment may be precisely the right time to diversify internationally.

According to Fidelity’s Asset Allocation Research Team (AART), the breakdown of decades-long global integration may actually be ushering in a new paradigm—one in which different regions grow more independently, leading to broader and more varied investment opportunities across global markets. Rather than relying solely on U.S. companies to drive returns, investors can benefit from economic transformations occurring abroad.

Year-to-Date Performance Underscores the Power of Diversification
So far in 2025, the difference in market performance between U.S. and international stocks is striking. The S&P 500 has been volatile and is essentially flat year-to-date. Meanwhile, the MSCI ACWI ex-U.S. Index—which excludes U.S. equities—has delivered double-digit gains. While past performance is not indicative of future results, this divergence is a strong reminder that geographic diversification remains critical to risk-adjusted returns.

Valuation Gaps: International Stocks Offer More for Less

One of the clearest arguments for investing outside the U.S. lies in relative valuations. U.S. equities, especially in tech-heavy sectors, remain expensive by historical standards, despite recent underperformance. In contrast, many international stocks—both in developed and emerging markets—trade at deep discounts relative to their potential.

Emerging markets (EM), in particular, are now priced near historical lows. The last decade saw the U.S. dominate capital flows, buoyed by strong economic growth and global investor confidence. Meanwhile, many EM and even developed market stocks languished under the weight of slow growth and geopolitical risk. But the tide may be turning.

Economic Cycles and Market Timing: A Tale of Diverging Trajectories

The U.S. economy appears to be heading into a slowdown, and history shows that equity markets often decline during recessionary periods. By contrast, several key international economies are emerging from downturns and entering expansion phases—traditionally the most favorable period for stock market gains.

Fidelity’s AART believes that these cyclical tailwinds, coupled with low valuations, position international markets for superior performance in the years ahead.

Demographics and Emerging Market Consumers: The 20-Year Growth Engine

Perhaps the most compelling long-term investment thesis lies in the emerging market consumer. EM countries are expected to contribute about 50% of global GDP by 2045, up from around 40% today and just 25% two decades ago. This transformation is driven by rising middle classes, youthful populations, and increasing urbanization.

India exemplifies this trend, with more households earning over $10,000 in disposable income than Japan—a telling indicator of spending potential. China, too, remains a misunderstood opportunity. Despite trade tensions, its consumer economy is still underpenetrated, with consumption accounting for just 33% of GDP compared to 70% in developed markets. This suggests significant room for expansion as incomes rise and spending accelerates.

Fidelity’s Sam Polyak notes that Chinese stimulus measures are cushioning the impact of U.S. tariffs, creating a favorable backdrop for domestic companies in sectors like e-commerce, automation, and health care. He points to current valuations as “extreme bargains” for high-quality, consumer-driven companies in China.

Another standout is MercadoLibre, Latin America’s leading online marketplace. Despite currency volatility and economic challenges in the region, the Uruguay-based company has demonstrated operational excellence and the ability to thrive where competitors struggle.

Developed Markets: Don’t Overlook Stability and Innovation

While emerging markets may offer the most explosive growth potential, developed markets (DM) also hold promise. European and Japanese stocks are attractively priced due to years of underperformance and policy constraints. But change is in the air.

In Europe, interest rate cuts by the ECB, Bank of England, and Bank of Canada are beginning to stimulate growth. These rate reductions are particularly impactful in regions where consumers and businesses are more rate-sensitive than in the U.S., potentially boosting corporate earnings and equity returns.

Fidelity’s Bill Bower highlights how European companies are adapting to shifting trade and security relationships with the U.S. As Europe looks to reduce reliance on external powers, firms are rethinking their business models and cost structures—creating fertile ground for stock pickers.

Luxury brands like Hermes and Ferrari are prime examples of how scarcity and exclusivity can create pricing power, allowing them to weather macroeconomic headwinds. These firms maintain brand strength through supply discipline and targeted growth, making them resilient holdings in any market environment.

Japan, meanwhile, is undergoing long-overdue corporate governance reforms. According to Jed Weiss, structural changes—such as enhanced board independence and reductions in cross-shareholdings—are freeing up capital and aligning management with shareholder interests. These shifts could unlock significant value in a market that has historically been overlooked by global investors.

Currency and Political Risk: Real, But Manageable

No investment strategy is without risk. International investing entails foreign exchange fluctuations, political instability, and different regulatory environments. These are particularly pronounced in emerging markets, where policy shifts can be swift and disruptive.

That said, the notion that only EMs carry policy risk is outdated. Recent U.S. policy moves, including tariff escalations, underscore that even developed markets are not immune. What’s more, EMs are not a monolith—countries like South Korea and South Africa have little in common beyond an index label. This diversity demands both careful security selection and regional diversification.

Active Management Can Be a Strategic Advantage

Given the nuances of international markets, active management can offer significant benefits. Skilled portfolio managers can identify promising companies, navigate local political and economic landscapes, and mitigate downside risk more effectively than passive strategies alone.

As Bill Bower puts it, “Uncertainty is what creates opportunity.” The current environment, while difficult to navigate, offers investors a chance to be compensated for their patience and risk tolerance—especially when guided by experienced professionals.

How to Gain Exposure

For investors looking to broaden their global footprint, there are many professionally managed vehicles available:

• Mutual Funds: Actively managed funds such as Fidelity® Total International Equity Fund or Fidelity® Diversified International Fund provide broad exposure with the benefit of professional oversight.
• ETFs: For a more cost-effective, passive approach, ETFs tracking the MSCI ACWI ex-U.S. Index or specific EM/DM regions can serve as excellent building blocks.
• Managed Accounts: Customized international portfolios designed around your risk profile can be built through managed account platforms.
  You can use screeners like Fidelity’s Mutual Fund Evaluator or ETF/ETP Screener to explore international opportunities tailored to your investment strategy.

Final Thoughts: The Case for Going Global

Looking forward, high-quality non-U.S. stocks are poised to take center stage. Between demographic tailwinds, valuation advantages, structural reforms, and a shifting global economic order, international equities—especially in emerging markets—offer a diversified, growth-oriented complement to U.S.-centric portfolios.

The next 20 years will not look like the last 20. For investors willing to expand their horizons, the rewards may be significant.

Disclosure: All investing involves risk, including the risk of loss. Diversification does not ensure a profit or guarantee against loss. This article is for informational purposes only and should not be considered investment advice.