International viewpoints: the US vs International debate

Historical cycles of international equity outperformance

Relative performance of S&P 500 versus international developed markets based on five-year rolling returns.

As with any investment, your capital is at risk.

1. 1980s: Japan's rise

• During the 1980s, international equities, particularly those in Japan, experienced significant growth. Japan's economic boom was fuelled by rapid industrialisation and technological advancements, making it the second largest economy in the world by the end of the decade.
• Performance data: In the mid-1980s, international stocks outpaced US equities, with Japan's stock exchange surging to record highs. However, the US stock market did experience periods of strong performance during the late 1980s. This was driven by higher earnings growth, attributable to factors such as a recovery from the earlier recession and more accommodative monetary policy.

2. Early 2000s: global diversification

• The early 2000s saw another period of international equity outperformance. This was driven by strong economic growth in emerging markets, particularly in Asia, and the recovery from the dot-com bubble in the US.
• Performance data: From 2000 to 2009, international stocks outperformed US stocks by about 2 per cent annually.

3. Post-2008: US dominance

• Following the Global Financial Crisis (GFC) in 2008, US equities began a prolonged period of outperformance. This was largely due to the rise of technology giants such as Apple, Microsoft, Amazon, and Alphabet (Google), which significantly contributed to the growth of US indices.
• Performance data: Over the past decade, the S&P 500 has delivered an annualized return of about 14 per cent, far surpassing the 5 per cent average return of international stocks.

Why did US equities dominate for so long?

• The US has a strong presence in the technology sector, which has been a major driver of growth. Companies like Apple, Microsoft, Amazon, and Alphabet have consistently outperformed their international peers.
• The US has experienced relatively robust economic growth compared to many international markets. This is especially true in Europe, where member countries have faced challenges such as slower growth and geopolitical tensions.
• US stocks have benefited from high valuations and a perception of innovation-driven sectors, which has attracted significant investment.

What happened in international equities?

• Slower economic growth in regions like Europe has hindered the performance of international equities.
• Emerging markets have faced political instability and geopolitical risks, which can deter investment.
• International markets have been perceived as lacking the same level of innovation that is widespread and well represented in the US.

The future: a compelling case for broader horizons?

Looking ahead, there are several reasons why international equities may continue to outperform US stocks:

• Economic growth potential: emerging markets are expected to grow at a faster pace than developed economies over the next decade due to favourable demographics and rising productivity.
• This in turn will increase wealth and, together with improved fiscal positions across the regions, should provide an attractive backdrop for investment.
• Monetary policy divergence: while the Federal Reserve remains cautious about cutting interest rates too quickly, central banks in Europe and Asia are adopting more accommodative policies to stimulate growth.
• Geopolitical realignment: as global trade patterns shift away from reliance on the US, regions like Asia-Pacific are becoming increasingly self-reliant.

Looking ahead

The dominance of US equities over the past decade has been remarkable but not unprecedented within the broader context of market cycles. As we progress through 2025, signs point to a potential shift in favour of international markets driven by attractive valuations, improving economic conditions and opportunities that were not widely recognised previously.

For those seeking long-term growth, now may be an opportune time to look closer at international markets, and preferably before this cycle gains a head of steam. Doing so could unlock a new era of worldwide equity outperformance beyond the undeniable powerhouse that is US equities.

Risk factors

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in March 2025 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

Potential for profit and loss

All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. 

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this communication are for illustrative purposes only.

Important information

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial intermediaries

This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.

Europe

Baillie Gifford Investment Management (Europe) Ltd (BGE) is authorised by the Central Bank of Ireland as an AIFM under the AIFM Regulations and as a UCITS management company under the UCITS Regulation. BGE also has regulatory permissions to perform Individual Portfolio Management activities. BGE provides investment management and advisory services to European (excluding UK) segregated clients. BGE has been appointed as UCITS management company to the following UCITS umbrella company; Baillie Gifford Worldwide Funds plc. BGE is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co. Baillie Gifford Overseas Limited and Baillie Gifford & Co are authorised and regulated in the UK by the Financial Conduct Authority.

South Korea

Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.

Japan

Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.

Australia

Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a “wholesale client” within the meaning of section 761G of the Corporations Act 2001 (Cth) (“Corporations Act”).  Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client.  In no circumstances may this material be made available to a “retail client” within the meaning of section 761G of the Corporations Act.

This material contains general information only.  It does not take into account any person’s objectives, financial situation or needs.

South Africa

Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.

North America

Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.

The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission (‘OSC’). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford International LLC is regulated by the OSC as an exempt market and its licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.

Israel

Baillie Gifford Overseas Limited is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755–1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.

Singapore

Baillie Gifford Asia (Singapore) Private Limited is wholly owned by Baillie Gifford Overseas Limited and is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence to conduct fund management activities for institutional investors and accredited investors in Singapore. Baillie Gifford Overseas Limited, as a foreign related corporation of Baillie Gifford Asia(Singapore) Private Limited, has entered into a cross-border business arrangement with Baillie Gifford Asia (Singapore) Private Limited, and shall be relying upon the exemption under regulation 4 of the Securities and Futures (Exemption for Cross-Border Arrangements) (Foreign Related Corporations) Regulations 2021 which enables both Baillie Gifford Overseas Limited and Baillie Gifford Asia (Singapore) Private Limited to market the full range of segregated mandate services to institutional investors and accredited investors in Singapore.

144825 10054123