May 14, 2025
Positive developments on global trade have investors rotating back to US shares from havens overseas. In this WWW report we look for clues of emerging leadership in the international space. Germany and China had seen the most sustained improvement during the correction. Will the re-emergence of US shares dampen that enthusiasm?
While the Bullish Reversal Remains Intact, Domestic Shares Likely to Lead
A look at US, EM and DM benchmarks shows continued negative correlation between the performance of US and ex-US equities (chart below). The dynamic is present at all market cap. tiers, though we note that EAFE Small Cap. stocks (panel 3) have done a better job holding onto YTD gains than other ex-US cohorts.
Developed Market Leadership Remains Intact
Within the EAFE universe, German shares continue steady outperformance. We’ve seen firming in Singaporean and Israeli shares as well as investors are adding to “risk-on” positions amid improving sentiment. Spanish shares continue to be a bright spot as well.
Rheinmetall AG (chart below) has been a standout stock within Germany and the bull trend is still going strong along with others like Siemens Energy AG, Heidelberg Materials, Deutche Bank AG and other Large Cap. Bellwethers.
China shares Continue in a Bullish Reversal
Among major countries in the EM Index (chart below), China shares (bottom panel) continue in a bullish reversal structure vs. the benchmark while investors have begun to bid on Taiwanese shares in the very near-term as investors get more optimistic about a durable solution on tariffs. Argentine shares are firming as well and we’ve even seen some marginal improvement from Brazilian and Mexican equities, the former likely due to some near-term firming in Crude and Commodities prices.
Similar to leading German names, Chinese bellwethers like Alibaba (chart below) and Tencent continue to act well despite flows moving into US equities again.
We also think Taiwan Semi (TSM, chart below) is a buy here confirming the bullish reversal with prices above their 200-day moving average.
Conclusion
US equities are likely to outperform ex-US while reflation continues. However, there are many standout stocks worth owning in the ex-US space. Germany, China and Spain look attractive from a top down and bottoms-up perspective in our work and we are keeping an eye on commodities producers like Brazil now that recessionary dynamics have subsided.
Data sourced from FactSet Research Systems Inc.
