Key Takeaways
- The US market has underperformed the rest of the world in 2025, as sky-high US stock valuations have created better opportunities elsewhere.
- Taiwan Semiconductor’s increasingly diverse manufacturing base may help assuage investor fears over geopolitical risk.
- The South Korean stock market has been structurally cheap for years, but recent reforms may change that.
While the US stock market may have underperformed many of its international counterparts this year, global fund managers have found plenty of opportunities for investors elsewhere, from European banks to Brazilian beverage companies to South Korean chip makers.
The Morningstar US Market Index has returned 11.8% so far in 2025, compared with the Morningstar Global Markets ex-US Index, which has returned 25.8%. This stands in stark contrast with most of the past 15 years, when the US market averaged 13.7% annually, compared with just 6.6% for the rest of the world.
“The US stock market has done really well, but its forward return has been destroyed,” says Stephen Yacktman, portfolio manager of the $177 million AMG Yacktman Global Fund YFSIX. “The stock prices relative to EBIT have gone so high that you’ve already got the money from your investment up front.”
Keith White, who works at Wellington Management, a subadvisor for the $2.5 billion Vanguard Global Capital Cycles Fund VGPMX, says, “We find non-US markets almost uniformly significantly more attractive than the US markets because of more attractive valuations and significantly less financial leverage,”
This valuation gap is clear from the data. The US Market Index has a price/earnings ratio of 22.3, compared with 14.8 for the Global Markets ex-US Index. The US market also has a significantly higher valuation when looking at price to book value, price to sales, or price to cash flow, but there are plenty of investment opportunities across the world for funds with a go-anywhere mandate.
Taiwan: Home of a Discounted AI Star
The tech sector has driven US stock markets higher in recent years, thanks to the boom in artificial intelligence names such as chip company Nvidia NVDA. However, Nvidia only designs the graphical processing units used for AI data centers. The firm responsible for making its chips is Taiwan Semiconductor Manufacturing TSM.
Taiwan Semiconductor trades at 29.2 times its earnings per share, compared with 44.6 times for Nvidia. This valuation cap remains even after the firm’s 42% rise this year so far. The reason for this discount is the company’s location. Mathews Cherian, one of the portfolio managers of the $41.2 billion American Funds New Economy Fund RNGGX, highlights the “risk around China eventually taking over Taiwan.” The fund holds a 5.3% allocation to the firm across two share classes, which combined makes it the fund’s second-largest holding.
This geopolitical risk is diminishing, however, as Taiwan Semiconductor has invested heavily in building up manufacturing capacity elsewhere, especially in the United States. “People are saying it’s soon going to be known as USMC,” says Julian McManus, one of the managers of the $3.1 billion Janus Henderson Global Select Fund JORFX, which has a 5.2% allocation to the stock, its third-largest position. He also thinks a key factor that will elevate Taiwan Semiconductor is pricing power. He says the firm has underutilized this with the current generation of chips, but it can take better advantage in future generations.
Europe: Cheap Banks and Unwinding ESG
European banks have had a poor reputation since the global financial crisis, still largely regarded as badly managed and undercapitalized. But McManus says that view is out of date. In addition to building substantial capital under the Basel III regulatory requirements, European banks developed the emergency Single Resolution Fund, providing further insurance against financial instability. This has been paired with an end to Europe’s rock-bottom interest rates, allowing more room for banks to make money on loans.
McManus particularly likes the Austrian Erste Group Bank EBKOF, the fund’s 15th-largest holding with a 2.4% weighting, which is up 72.0% in the year to date. McManus says the bank is well-positioned to take advantage of loan growth across Eastern European countries, which have received ample foreign investment. Countries like Hungary are EU members and both have access to lucrative western European markets and come with significantly lower costs. McManus says this has let the bank achieve significant growth while remaining at a comparatively low valuation.
Another European opportunity is French food company Danone GPDNF. “Danone is fundamentally an attractive business,” says Daniel O’Keefe, one of the managers of the $2.8 billion Artisan Global Value Institutional APHGX, which has a 3.9% weighting to Danone, its 9th-largest holding. “They have a nice dairy business, infant nutrition business, and bottled water business. Those are attractive categories within the fast-moving consumer goods business.”
Since the fund first bought the stock at the end of 2020, activist have investors instigated the removal of CEO Emmanuel Faber, and since then, the business has performed significantly better. O’Keefe says Faber was so caught up in the “obsession” around ESG-focused investing sweeping Europe that it harmed the business.
In a similar vein is cement manufacturer Heidelberg Materials HLBZF, which is the Artisan fund’s fourth-largest holding with a 4.6% weighting. O’Keefe says the stock was underperforming because as a cement business with a very large carbon footprint, it was being shunned for ESG reasons. O’Keefe says that as investors have stepped back from ESG investing, this has helped the stock bounce back. It has returned 104% so far in 2025.
Brazil: A Bank Stock Up 92% This Year
Wellington’s White says, “From a pure fundamental perspective, Brazil has a lot going for it.” He believes the main opportunity comes from the country’s interest rates, which are among the highest in the world. He says this has pushed stocks there to “25-year relative lows,” trading at 30%-50% discounts relative to similar developed-market businesses. With inflation significantly decreased and the Brazilian government having improved its fiscal health, White says there’s room for rates to fall significantly. He believes that if this happens, stock prices will rise.
One stock he has his eye on is Bank Bradesco BBDO, which is up 92% so far this year. He says the bank is very attractively priced, and that even though higher rates can help banks, rates are currently so high that the depressed demand significantly outweighs the extra interest income. He also likes that the bank is not highly leveraged. The fund has a 2.4% weighting to Bank Bradesco, its 9th-largest holding.
South Korea: An Undervalued Market With an AI Gem
Another country where structural issues have held back the stock market is South Korea. According to Yacktman, whose fund has a 39% allocation to the country, many companies there are run with the goal of maintaining family ownership and minimizing inheritance taxes rather than maximizing shareholder value. Companies also sit on large amounts of cash rather than returning it to shareholders.
These issues should be changing as the South Korean government implements reforms, including giving companies a fiduciary duty toward their shareholders. “They will not only have an obligation to look at the interests of minority shareholders, but they can get put in jail for not taking care of all shareholders equally,” says Yacktman.
One South Korean stock to watch is chip company SK Hynix 000660, a memory manufacturer that makes RAM and similar memory chips. “And it’s not just regular RAM, it’s what’s called high bandwidth memory, which is basically super fast memory in very large quantities,” says American Funds’s Cherian. He explains that this type of memory is much less likely to become a commodity good than traditional DRAM because it’s made for enterprise customers rather than consumers, so performance and power efficiency matter enough to create pricing power in a way manufacturing RAM for PCs never has.
Cherian sees SK Hynix as an undervalued AI play, and has a 3.5% weighting to the stock. It is the fund’s 4th-largest holding after Nvidia. According to Cherian, SK Hynix has roughly a 70% share of the market for the most recent generation of chips, with Micron Technology MU making up the other 30%. SK Hynix’s stock is up 200% in the year to date and still holds a 11.2 price/earnings multiple, compared with Micron’s 24.3.
