Following an extended period of subdued performance stretching from 2009 to 2024, global stock markets are now exhibiting indicators of a substantial reversal. The iShares International Select Dividend ETF (IDV) recently surpassed a significant trading threshold that had persisted for 17 years. This breakthrough is attributed to a surge in market valuations and sustained upward momentum, hinting at a potential '1982 moment' for international equities. Such a development necessitates investors to reassess their global portfolio allocations.
For a considerable duration, international stock markets posed a challenge to investors' faith in geographical diversification. Despite compelling arguments for global exposure, these markets often trailed their counterparts, particularly the robust US market. This led to a consensus among many that focusing primarily on domestic investments was a more prudent strategy, overlooking the cyclical nature of market dynamics and the eventual return to mean.
The current landscape, however, signals a shift. With the US Dollar showing signs of weakening and the global geopolitical environment undergoing notable changes, the narrative of 'US exceptionalism' is increasingly being questioned. The rising value of precious metals further contributes to this evolving scenario, suggesting that the conditions that favored US equities for so long might be receding.
The year 2025 marked a pivotal moment, with IDV experiencing a robust surge from its previously low valuations. This significant price movement, breaking a long-standing trading range, was not merely a fleeting event but rather indicative of strong underlying momentum. This breakout suggests that international markets, previously overlooked, are now entering a phase where their inherent value is being recognized and rewarded.
The sustained under-investment in international markets during their prolonged slump has created an environment ripe for substantial growth. As capital flows begin to reallocate towards these undervalued assets, the momentum is expected to accelerate. This mirrors historical instances where markets, after extended periods of stagnation, experienced explosive growth once investor confidence returned and fundamental values were acknowledged.
Considering these developments, re-evaluating portfolio allocations to include a more substantial international component appears to be a judicious strategy. The relative value proposition of international markets, coupled with mean reversion dynamics, implies that these markets could offer compelling returns in the coming years. Investors should look beyond past performance and recognize the emerging opportunities in a shifting global economic order.
