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In a market dominated by artificial intelligence, international stocks were the sleeper hit over the past 12 months. In 2025, for the first time in 16 calendar years, foreign shares significantly outpaced their U.S. counterparts.
Vanguard Total International Stock (VXUS), one of our favorite exchange-traded funds and a member of the Kiplinger ETF 20, gained more than 32% over the 12-month period ending December 2025.
By contrast, the iShares Core S&P 500 ETF (IVV), tracking the U.S. benchmark, returned 18%. Meanwhile, shares in developing countries did even better; the iShares Core MSCI Emerging Markets ETF (IEMG) climbed nearly 33% over the same one-year period.
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The weakening dollar was a tailwind. Its 9.4% drop in value in 2025 relative to a basket of foreign currencies meant any revenues and profits generated overseas became more valuable when converted into dollars.
Lower interest rates in the U.S. helped nudge investment capital abroad, while improving economic conditions there provided a favorable backdrop. Stepped-up spending on defense and security in European countries was a boon to those markets.
The setup fueled robust, double-digit returns for most foreign markets. Top performers among developed markets included Spain and Austria, which returned 82% and 78%, respectively, for the year ending in December.
Emerging markets South Korea and Greece logged 100% and 83% gains, respectively. All told, European bourses returned more than 35% over the same period. And China shares rallied 31%.
Global momentum could continue
Most global strategists expect at least some of that momentum to continue, especially if the dollar weakens further or even stabilizes at its current weaker position.
Strategists at BofA Global Research expect the dollar, indexed against a basket of other currencies, to end 2026 near $95; it was just below $99 in late 2025. A global “economic rebalancing” is underway, they write in a recent report, which they believe could be a plus for European and Chinese stocks.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
