Our call to Go Global rather than Stay Home has paid off so far this year, despite the latest war in the Middle East, which boosted Stay Home, especially in March. However, Go Global was mostly driven by the AI trade in South Korea and Taiwan.
The Emerging Markets MSCI ETF (EEM) is up 25.4% ytd against 10.9% for the S&P 500. Moreover, we recommended staying out of China. The EM ex-China ETF (EMXC) is up 39.0% ytd. Europe, Japan, and many EMs that are net petroleum importers should outperform when the Strait of Hormuz reopens, at least on a short-term basis.
Here's more:
(1) Go Global vs Stay Home. The ratio of the US MSCI to the All Country World (ACW) ex-US MSCI stock price index had been on a solid upward trend since 2010, peaking at a record high in early 2025 (chart). It fell below this trend in late 2025. It rebounded during the war because the US is a net petroleum exporter. The ratio remains below the trendline.
The forward earnings per share of the ACW ex-US MSCI has been rising rapidly, along with the comparable series for the US (chart). The strength is broad-based across regions, with India a notable upside surprise. This is a bit surprising, though the AI-led boom in South Korea and Taiwan certainly explains much of the strength in the overseas measure of forward earnings.
The US MSCI’s forward P/E is currently 21.5 versus 14.2 for the ACW ex-US MSCI, and the gap has widened recently (chart). There's clearly room for multiple expansion overseas, though that's been true for a long time.
