In recent years, equity investors placed significant attention on U.S. stocks, especially as the megacap “Magnificent 7” companies drove the S&P 500 to new heights. So far in 2025, U.S. stocks have weathered macro and geopolitical uncertainty. At the same time, valuations (as measured by price‑to‑earnings, or P/E) remain above their historical medians.
But there’s an entire world outside of U.S. stocks. After several years of weaker relative performance, through August 31, 2025 international developed (+22.8%) and emerging markets (+19.0%) have outperformed both large cap (+10.8%) and small cap (+7.1%) U.S. equities.1 At the same time, valuations for international developed and emerging markets equities remain significantly lower versus their domestic counterparts and near their long‑term medians, as shown in the chart below.
Asset Class Valuations Trailing 20‑Years (Starting 8/31/2005)
Data as of 08/31/2025. Source: Bloomberg. Note: For US Small Cap, the Current P/E was approximately 59x as of 08/31/2025, so that figure does not appear in the chart area. Performance data shown represents past performance and is no guarantee of future results. Please see Important Information for indices used.
It is helpful to remember that the non‑U.S. stock universe is extremely diverse, with significant differences between developed and emerging markets, regions, countries, and companies. Digging into valuations of regions across the globe shows broad disparities, with certain areas well below their historical medians on a valuation basis, potentially indicating that these regions could be attractively priced. Other areas are near or above their historical medians, though the U.S. stands out as by far the most expensive region across the globe on a P/E basis.
Regional Valuations Trailing 20‑Years (Starting 8/31/2005)
Data as of 08/31/2025. Source: Bloomberg. Performance data shown represents past performance and is no guarantee of future results. Please see Important Information for indices used.
Next steps
What could this mean for investors? For equity investors that may have underweights to non‑U.S. stocks, now could be the time to consider increasing their exposure. And while non‑U.S. stocks may appear attractive on a relative basis, the universe is vast and highly nuanced. For investors looking to expand their international equity allocation, we believe it is imperative they consider seasoned managers with experience in navigating the constantly evolving global equity landscape.
To learn more about Harbor’s analysis of the market environment as a whole and opportunities for prudent asset allocation, check out our weekly research presentation – The Current.
Important Information
Risks
1 Source: Bloomberg. US Large Caps represented by the S&P 500 Total Return Index. US Small Caps represented by the Russell 2000 Total Return Index. International Developed (Equity) represented by the MSCI EAFE Net Total Return USD Index. Emerging Markets (EM Equity) represented by the MSCI Emerging Markets Net Total Return USD Index. Performance data shown represents past performance and is no guarantee of future results.
Investing entails risks and there can be no assurance that any investment will achieve profits or avoid incurring losses. Stock markets are volatile and equity values can decline significantly in response to adverse issuer, political, regulatory, market and economic conditions.
Diversification does not assure a profit or protect against loss in a declining market.
US Large Caps represented by the S&P 500 Total Return Index. US Large Value represented by the S&P 500 Value Index. US Large Growth represented by the S&P 500 Growth Index. US Small Caps represented by the Russell 2000 Total Return Index. International Developed (Equity) represented by the MSCI EAFE Net Total Return USD Index. Emerging Markets (EM Equity) represented by the MSCI Emerging Markets Net Total Return USD Index. Canada represented by the MSCI Canada Net Total Return USD Index. Mexico represented by the MSCI Mexico Net Total Return USD Index. Europe Ex UK represented by the MSCI Europe Ex UK Net Total Return USD Index. UK represented by the MSCI UK Net Total Return USD Index. Japan represented by the MSCI Japan Net Total Return USD Index. Asia Ex Japan represented by the MSCI AC Asia ex Japan Net Total Return USD Index. EM Asia represented by the MSCI Emerging Asia Net Total Return USD Index. EM Europe represented by the MSCI Emerging Markets Europe Net Total Return USD Index. Indices are unmanaged and do not reflect fees and expenses and are not available for direct investment.
International and emerging markets investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets or in concentrations of single countries.
This material is intended solely for educational purposes, and should not be construed as investment advice, a recommendation, or an offer or solicitation to purchase or sell any securities. The opinions expressed are as of the date(s) indicated and are subject to change without notice. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks, including the risk of loss. This information is not intended to be complete or exhaustive and no representations or warranties, either express or implied, are made regarding the accuracy or completeness of the information contained herein. This material may contain estimates and forward‑looking statements, which may include forecasts, and do not represent a guarantee of future performance. Past performance does not guarantee future results. Investors should consult with a financial professional before making any investment decisions.
Price-to-earnings (P/E) measures a company's share price relative to its earnings per share (EPS).
The views expressed herein may not be reflective of current opinions, are subject to change without prior notice, and should not be considered investment advice or a recommendation to purchase a particular security.
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