A sharp divergence between U.S. and Asian equities that began earlier this year is likely far from over, according to analysts at Bernstein. Amid rising economic uncertainty and attractive overseas valuations, a “great rotation” out of American stocks could dominate the rest of 2025.
U.S. Markets Struggle While Asia Gains Ground
So far this year:
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The S&P 500 has slumped 8.6%.
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Japan and Asia ex-Japan have barely remained positive, up 0.7% and 0.3% respectively.
Bernstein highlights that the decoupling began when the narrative of “U.S. exceptionalism” started to crack, exacerbated by tariff-related tensions, a weaker U.S. dollar, and volatile bond yields.
Where the Opportunities Are: Japan, India, Korea
Bernstein believes Asia will continue to outperform, with Japan, India, and South Korea named as the most attractive markets.
Key points supporting this view:
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Fund flows are shifting:
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The week of March 25 saw $20 billion flow into Europe and $7 billion into Japan.
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A similar shift occurred the week after April 9.
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Despite ongoing heavy U.S. equity inflows, investors are starting to reallocate globally.
Historical patterns suggest that during U.S. drawdowns:
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Asia ex-Japan typically outperforms for about four months.
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Japan shows similar strength over five months, driven by domestic sectors and value stocks.
Why Asia Looks Stronger: Valuation and Earnings Power
Bernstein points to compelling valuation advantages overseas:
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U.S. equities: Price-to-book at 3.9x.
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Japan equities: Much cheaper at 1.3x, with forward P/E ratios near historical lows at 13x.
Earnings expectations also favor Asia:
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Japan is in an earnings upgrade cycle, with 0.9% GDP growth projected in 2025.
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In contrast, Asia ex-Japan expects a 0.8% GDP decline, while the U.S. faces a 0.9% contraction.
Investors tracking these market shifts can leverage detailed macro insights through the
Economics Calendar API.
Final Thoughts
The rotation out of U.S. equities into Asian markets appears more than just a short-term trend. With valuation, earnings growth, and fund flows aligning in favor of Asia, investors may find greater opportunities by diversifying beyond U.S. borders.
For a deeper look into valuation metrics across regions, explore the
Sector P/E Ratio API.
