European and other international stocks have enjoyed a strong rebound in 2025, offering investors attractive valuations and renewed growth prospects. Increasingly, investors are rediscovering those opportunities at a time when they are concerned with both concentration and valuation risks after a decade and a half of strong performance in U.S. markets.
“Investors have gone to one side of the boat with the U.S. market for a long stretch of time. Many, if not most, are not nearly as diversified as they probably should be – and that now looks to be changing,” says David Lambert, managing director, senior portfolio manager and head of European equities at RBC Global Asset Management (UK) Ltd. in London.
In his view, the wave of investment flows away from U.S. assets that began this spring, when the U.S. announced its new tariff regime, represents the beginning of a potential long-term trend.
That’s poised to benefit investment vehicles such as RBC International Equity Fund and RBC International Dividend Growth Fund, which have a combined $4.9-billion in assets under management (as of November 30, 2025)
Non-U.S. stocks remain roughly 5% below fair value, with European, U.K. and emerging-market equities trading under their historical norms. In comparison, the S&P 500 sits above its historical norm.
“At the beginning of the year, European markets were trading at 12 times earnings, and had been for a lengthy period of time with no real catalyst,” Mr. Lambert says.
Historically, that has been fairly cheap. Then came the April tariff announcement, jolting markets and U.S. trading partners alike, particularly in Europe and its biggest economy, Germany.
That news has led to a “complete change of tack from the Germans,” he says.
Specifically, the longstanding debt brake was lifted, with hundreds of billions of euros earmarked for defence and infrastructure. Similar responses were seen across other Eurozone economies, which can provide a much-needed jolt for their markets and earnings growth.
By mid-year, the MSCI Europe Index, which captures large and mid cap representation across developed-market countries in Europe, noted a price-earnings ratio up to 15.9.
Mr. Lambert expects European earnings growth in 2026 could reach as high as 12%. “For a region that’s experienced very little growth for a long period, this is a step change.” he says.
Change is also afoot in Asian markets, says Mayur Nallamala, managing director, chief executive officer and head of Asian Equities at RBC Global Asset Management (Asia) Ltd. in Hong Kong.
He notes that the U.S. dollar is expected to weaken over the medium term, which benefits Asian markets, and their valuations are similarly cheap on a relative basis.
“It just takes small amounts of fund flows to cause quite dramatic reversals of performance,” Mr. Nallamala says.
Due to the strong performance by U.S. equities, the U.S. weighting in total global market indexes has increased significantly. MSCI World Index, which tracks global equities across all major markets, now comprises 70% U.S. stocks by total market cap, which is up from around 50% following the 2008 global financial crisis.
Additionally, an extremely small group of companies have grown to comprise a significant weight within the benchmark S&P 500 – just 10 stocks make up about 40% of the index.
For many long-term investors, this could be a source of unexpected risk, as the concentration of U.S. stocks in their portfolios may be too high.
As economic growth picks up, Mr. Lambert says domestic sectors within Europe are becoming more appealing, particularly utilities, telecoms and financials.
“There’s some interesting changes going on underneath the hood, which should benefit aggregate earnings growth over the next number of years,” he says.
Mr. Lambert points out that European financials comprise about a quarter of the market by capitalization.
“For Europe, as a region, to continue to perform well, you need banks to perform,” he says. “We’re seeing loan growth, improving balance sheets and attractive valuations. We’re fairly positive on the outlook.”
Meanwhile in Asia, Japan is expected to generate stable returns after a marked run in the past few years. For the rest of the continent, much of which is tied to China’s economy, Mr. Nallamala says the expectation is for better conditions to emerge after a multi-year slump.
Tariffs and trade uncertainty remain, but he says all Asian economies are dealing with largely the same level of duties, which may dampen but not deteriorate demand significantly.
“One of our key markets in the international fund is Hong Kong,” Mr. Nallamala says. “It’s had a really big run this year. We’re seeing a recovery that has a lot of room to run.”
Produced with RBC Global Asset Management by Globe Content Studio, the content-marketing division of The Globe and Mail.