As the market’s US exceptionalism narrative wanes this year, there are two places investors may want to look to for returns.
Amid trade uncertainty and dimming economic prospects, US markets have been rattled in 2025. The recent stock market correction has spurred talk that investors may be better off looking abroad than hoping for US equities to regain their footing. After years of underperformance, international stocks are suddenly in the spotlight as they surpass US peers.
According to BlackRock, there are two markets in particular where investors should look to park some money.
Japan
The world’s largest asset manager thinks the earnings outlook has improved for Japanese companies. Corporate reforms and mild inflation will help, and have resulted in companies’ returns on equity hitting a peak. Corporate profitability for Japanese firms recently reached a four-decade high, BlackRock said.
Last week, Japan’s Topix exchange rose 3.3%, shooting past the S&P 500’s 0.5% weekly gain.
However, the possibility of a stronger yen could diminish the earnings outlook, BlackRock added. While the currency’s appreciation has slowed, traders will have to watch the economic data in the country and the actions of its central bank.
China
BlackRock is also modestly overweight on the world’s second-largest economy, encouraged by recent artificial intelligence and tech developments. A flurry of competitive AI projects out of China has ratcheted up the competition to US tech dominance, pushing the tech-heavy Hang Seng index up 20% year-to-date.
“That contrasts with the onshore benchmark CSI 300, roughly flat this year, showing how the AI theme in China has been centered in tech as it initially was in the US,” the note said.
Yet, this also means that the country remains susceptible to tariff risks and structural macro challenges, and BlackRock remains “ready to pivot” on its outlook. Analysts have told Business Insider that the nation’s government is looking to correct course after a period of stringent regulation of the country’s tech sector scared investors away in 2024.
To be sure, US stocks are getting a respite from the downturn, and commentators say American exceptionalism could soon see a revival.
Morgan Stanley wrote on Monday that a resurgence of US equities led by fresh gains for the Magnificent Seven could be a catalyst to restart the broader rally. Reports that the next wave of tariffs would be softer than expected sent the S&P 500 and Nasdaq higher in Monday’s session.
For its part, BlackRock still holds an overweight on the US market, betting on upside from the AI theme and broadening earnings growth. Yet a surge in long-term bond yields or further escalations in a global trade war are looming risks.
