A sharp divergence between U.S. and Asian equities that began earlier this year is likely far from over, according to analysts at Bernstein. Amid rising economic uncertainty and attractive overseas valuations, a “great rotation” out of American stocks could dominate the rest of 2025.

U.S. Markets Struggle While Asia Gains Ground

So far this year:

• The S&P 500 has slumped 8.6%.

• Japan and Asia ex-Japan have barely remained positive, up 0.7% and 0.3% respectively.

Bernstein highlights that the decoupling began when the narrative of “U.S. exceptionalism” started to crack, exacerbated by tariff-related tensions, a weaker U.S. dollar, and volatile bond yields.

Where the Opportunities Are: Japan, India, Korea

Bernstein believes Asia will continue to outperform, with Japan, India, and South Korea named as the most attractive markets.

Key points supporting this view:

• Fund flows are shifting:

  • The week of March 25 saw $20 billion flow into Europe and $7 billion into Japan.

  • A similar shift occurred the week after April 9.

• Despite ongoing heavy U.S. equity inflows, investors are starting to reallocate globally.

Historical patterns suggest that during U.S. drawdowns:

• Asia ex-Japan typically outperforms for about four months.

• Japan shows similar strength over five months, driven by domestic sectors and value stocks.

Why Asia Looks Stronger: Valuation and Earnings Power

Bernstein points to compelling valuation advantages overseas:

• U.S. equities: Price-to-book at 3.9x.

• Japan equities: Much cheaper at 1.3x, with forward P/E ratios near historical lows at 13x.

Earnings expectations also favor Asia:

• Japan is in an earnings upgrade cycle, with 0.9% GDP growth projected in 2025.

• In contrast, Asia ex-Japan expects a 0.8% GDP decline, while the U.S. faces a 0.9% contraction.

Investors tracking these market shifts can leverage detailed macro insights through the
Economics Calendar API.

Final Thoughts

The rotation out of U.S. equities into Asian markets appears more than just a short-term trend. With valuation, earnings growth, and fund flows aligning in favor of Asia, investors may find greater opportunities by diversifying beyond U.S. borders.

For a deeper look into valuation metrics across regions, explore the
Sector P/E Ratio API.