Why Invest Outside the US as 2025 Ends?

TL;DR

Investors may benefit from increasing non-US exposure because a weakening dollar has historically supported emerging-market assets, while overseas markets already showed strong performance in 2025. The outlook remains constructive as inflation cools, growth expectations stay firm, and policy remains easy, although AI investments must produce credible productivity gains to justify extensive data-center spending.

Transcript

Hello and welcome to Market Domination. I'm Josh Lipton live from our New York headquarters. There's just an hour to go till the closing bell and stocks are eyeing their fourth straight day of gains. Let's welcome in our Nez Far joining us to break down the headlines. And as what are you seeing in the markets? Well Josh, we are looking at the major... Read More

Key Insights

• Major US stock indexes were heading toward a fourth consecutive session of gains, with the Dow and S&P 500 each up about 0.8% and the Nasdaq nearly 1%. Maintaining that pace on Friday would end the Nasdaq's three-week losing streak.
• The market's advance extended beyond major indexes, as Nvidia gained more than 1% and Broadcom, TSM, and AMD also traded higher. Bitcoin rose 3.5% toward 90,000, while Robinhood climbed 10% after announcing further expansion into prediction markets.
• The Federal Reserve's Beige Book showed that consumer spending declined further during November, partly because of the government shutdown. The report followed cooler September retail sales and suggested consumers continued spending at a tepid pace through the first part of November.
• The labor market showed slight deterioration as layoff announcements increased and employers limited headcount through hiring freezes and replacement-only hiring. Companies also adjusted existing employees' hours according to workload, while some firms used AI to replace entry-level roles or improve productivity and curb hiring.
• Tariffs produced widespread cost increases for retailers and manufacturers, contributing to a moderate rise in prices. Businesses varied in passing those costs to consumers because demand, competition, and price sensitivity differed, while some material prices fell because of weaker demand or reduced or postponed tariffs.
• A weakening dollar can support non-US assets because emerging markets have historically shown the highest sensitivity to dollar declines. Sahil Mahtani expected the dollar's multiyear weakening trend to continue and argued that international markets could outperform even while US assets continue producing acceptable returns.
• International diversification may deserve a larger-than-market allocation during a cycle favoring non-US assets. US assets had reached nearly 70% of the MSCI World index, and Mahtani argued that investors should reduce that concentration substantially to capture opportunities developing in overseas markets.
• AI investment remains constructive but increasingly depends on measurable productivity gains. Mahtani identified finance and other professional services with high human costs as promising beneficiaries, while warning that the labor-cost reductions required to justify hundreds of billions in data-center spending may be overly ambitious.

Questions & Answers

Q: Why should investors consider investing outside the US?

Investors should consider non-US assets because the dollar appears to be in a multiyear weakening trend, and overseas markets have historically benefited when the dollar declines. Sahil Mahtani also described a favorable environment in which inflation has come down, growth expectations remain high, and policy is easy. He still viewed the US as attractive, but expected international and emerging-market assets to perform particularly well.

Q: Which international markets could offer investment opportunities?

Sahil Mahtani highlighted Korea, China, and emerging markets more broadly. Korea was described as the best-performing asset outside the US during a year dominated by the AI trade. He also expected China to perform well, especially AI-linked stocks, because the negative effect of companies entering and leaving indexes at higher valuations, called net issuance, may have changed permanently.

Q: How does a weaker dollar affect emerging markets?

A weaker dollar can benefit emerging-market assets because they have historically displayed the highest sensitivity to dollar declines. Mahtani said emerging markets have performed very well when the dollar has fallen by a few percentage points. His expectation of continued multiyear dollar weakness therefore supports a constructive outlook for emerging markets and other assets outside the United States.

Q: How much international exposure should investors consider?

The interview did not prescribe a specific percentage for every portfolio. Instead, Mahtani argued that allocations should reflect market cycles and that investors should hold a larger-than-market weight in non-US assets during the current cycle. Because US assets had reached nearly 70% of the MSCI World index, he suggested reducing that concentration substantially to capture overseas opportunities.

Q: Where could AI create the greatest investment opportunities?

AI may create its clearest opportunities in service-based industries with high human labor costs, particularly finance and other professional services. Mahtani expected the technology to generate cost efficiencies, productivity gains, and new business models across sectors and geographies. He remained constructive on AI-linked investments, including overseas companies, while emphasizing that companies must demonstrate tangible economic benefits.

Q: Is the AI investment boom becoming a bubble?

Mahtani was not bearish on AI and did not expect the perceived bubble to burst soon, partly because Nvidia had provided favorable guidance for the following three to four quarters. He said increased investor skepticism had reduced the risk of a super bubble resembling the late 1990s. However, AI must show more progress and credible productivity gains to maintain confidence.

Q: What did the Federal Reserve's Beige Book say about the economy?

The Beige Book reported cooler consumer spending, slight deterioration in the job market, and a moderate increase in prices during the first part of November. Layoff announcements increased, employers constrained hiring, and some firms used AI to reduce entry-level hiring needs. Tariffs raised costs widely, although businesses differed on whether they could pass those increases to consumers.

Q: Why could the Beige Book support a Federal Reserve rate cut?

The report could strengthen the case for a rate cut because consumer spending cooled, the labor market weakened slightly, and some material prices declined because of weaker demand. Businesses also reported mixed ability to pass tariff-related cost increases to consumers. The report carried added importance because the Federal Reserve lacked current official government data before its policy meeting two weeks later.

Summary & Key Takeaways

• US stocks approached a fourth consecutive day of gains during the holiday-shortened week, with the Dow and S&P 500 up about 0.8% and the Nasdaq nearly 1%. Semiconductor shares, Bitcoin, crypto-related stocks, oil, and gold also advanced, while performance among the Magnificent Seven remained mixed.

• The Federal Reserve's Beige Book indicated cooler consumer spending, slight labor-market deterioration, and moderate price increases. Employers used hiring freezes, replacement-only hiring, and adjustments to existing workers' hours. Tariffs raised costs for retailers and manufacturers, but businesses differed on whether those increases could be passed to price-sensitive consumers.

• Sahil Mahtani argued that a multiyear decline in the dollar could favor emerging markets and other non-US assets in 2026. He highlighted Korea, China, and AI-linked companies while remaining constructive on US assets. He also said AI must demonstrate productivity gains, particularly in finance and professional services, to sustain investor confidence.