Why Asian Stock Indices Outperformed the US and Europe in 2025

JP Morgan’s Review of Markets over 2025 concludes with, “After a decade of US exceptionalism with returns concentrated in US technology stocks and boosted by an appreciating US dollar, 2025 saw the opposite as growth started to broaden out across the globe.”

Take a look at the returns of the global stock markets:

MSCI EM: +34.4%

MSCI Asia ex-Japan: 33.0%

Japan TOPIX: 25.5%

UK FTSE – All Share: 24.0%

MSCI Europe ex-UK: 20.1%

US S&P 500: 17.9%

Noticeably, the US stock market returns were the lowest in the group. The MSCI World ex-USA index performed significantly better than the US S&P 500 through 2025, returning 32.7%. This highlights the resilience of the global economy despite a weak dollar.

What Drove the Outperformance of the Asian Markets?

But first, a mention of the top-performing index. Thanks to the AI enthusiasm, governance reforms, and a low entry point, Korean equities performed the best, with returns of over 100% in 2025. Dive into what drove the rally across the Asian markets.

AI Enthusiasm

AI-related gains in the US were (and had been) concentrated only among a few giants, the Magnificent Seven. Whereas the AI rally in Asia was fuelled by both the region’s hardware dominance and emerging challengers.

The year began with China’s DeepSeek shaking up the AI market by redefining the efficiency and cost of AI models. By mid-2025, AI-powered search engine, Perplexity, challenged Google Chrome. These proved to the world that Asia has several strong contenders in the AI-software space.

With China facing tariff turbulence, Korea and Taiwan benefited from the global AI hardware demand. The earnings of Samsung and SK Hynix grew significantly due to the demand for High Bandwidth Memory (HBM) chips.

For traders, this is a signal to look beyond the “leading” AI companies and consider the entire supply chain. Markets are hugely driven by demand. So, valuable links, such as high-quality chip-providers and competitive yet affordable models, can potentially disrupt the AI market.

Corporate Governance

In 2025, Japan and Korea implemented Value-Up programmes. These programmes prevent companies from hoarding cash and force them to reward shareholders through buybacks and dividends, directly driving equity returns. Korea and Taiwan launched a multi-year AI hardware growth cycle by enabling HBM and broader semiconductor producers.

To trade in these regions, keeping an eye on reforms is crucial as policies directed toward business growth create a long-term structural floor for stock prices. These also unlock business potential worth millions, even billions. With China being cornered, supply chain diversification can be expected to continue across Asian nations, which may attract more investments. Singapore, Malaysia, and the Philippines plan to upgrade their industrial infrastructure, and their resilient private consumption can potentially benefit companies. Plus, the rapidly growing Indian economy and one of the largest markets may benefit from tax rationalisation and rising consumer discretionary spending.

What Held the EU Back?

European indices performed better than their US counterparts but failed to overtake the Asian markets. Major European economies, such as Germany and France, still lag in emerging sectors. Sectors, such as luxury goods, manufacturing and banking, still dominate the German DAX 30 and the French CAC 40. This is in stark contrast to the Asian markets, where the AI and technology sectors have outpaced others, driven by global demand.

The EU has several energy-intensive sectors and sits at a disadvantage with high dependence on imports. This leads to high manufacturing costs, making it difficult for EU exports to compete with Chinese prices. Low energy costs and superior EV infrastructure position China as a leader in green sectors.

Several EU nations, including Germany, had elections in 2025, while France struggled with an internal political crisis as multiple no-confidence motions were passed against the existing government. Although there were no general election in the UK, the loss of council control for the Conservative Party was a turning point in regional policies. Policy instability tends to make investors bearish, and traders short their assets in associated equities.

What Weighed on the US Markets?

The Fed shifted to a dovish stance, with interest rate cuts in 2025. By this time, the EU was nearly done with monetary easing. The rate-cutting cycle weighed on the demand for the US dollar. The greenback is inversely correlated to the growth of the emerging markets (EM). Debt repayment for dollar-denominated credit becomes a little easier. More importantly, a weak US dollar means the translated value of Asian earnings is higher in USD terms. This lifts the returns of Asian companies.

Forex traders must note that although a softening US dollar may hurt the competitiveness of Asian exports, the dependence of US companies on imports makes it beneficial for the Asian equity markets and debt sustainability. This also makes energy imports cheaper for Asian manufacturers, as oil and most other raw materials trade in US dollars. With a weakening dollar, investors chase currencies with a higher return potential than the greenback. This pushes up the currency’s valuation.

The performance of indices through 2025 serves as a reminder for traders to diversify their holdings across a variety of markets. With localised de-dollarisation efforts intensifying across the world, forex traders can also consider exposure to diverse currencies as a tool of diversification.

To Sum Up

• The Asian markets outperformed the EU and the US equity markets in 2025.
• The hardware-centric AI boom drove investments in Asia, and the emergence of alternative AI models challenged the dominance of US giants.
• A weakening US dollar supported the currency valuations of emerging economies. 
• EU exporters remained at a disadvantage due to high manufacturing costs and broader political instability.
• It is crucial for traders to diversify their holdings to navigate the shifting global trade and market dynamics. 
• With a weakening dollar, the Asian markets may generate opportunities for forex trading as currency valuations against the greenback improve.

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