Analysts at Bernstein predict that the sharp divergence seen between U.S. and Asian equities is likely to continue throughout 2025. As economic uncertainty grows and attractive valuations overseas beckon, a great rotation out of American stocks could dominate market trends.

U.S. Markets Struggle While Asia Gains Traction

This year to date:

• The S&P 500 has slumped 8.6%.

• Japan and Asia ex-Japan have held steady, up 0.7% and 0.3%, respectively.

Bernstein suggests that this decoupling trend began as the notion of U.S. exceptionalism began to falter, worsened by tariff-related tensions, a weaker U.S. dollar, and unstable bond yields.

Finding Opportunities: Japan, India, Korea

Bernstein believes Asia will continue to outperform, naming Japan, India, and South Korea as the most attractive markets.

Supporting points include:

• Fund flows are shifting, with $20 billion moving into Europe and $7 billion into Japan during late March.
• Similar trends observed the week of April 9 show ongoing reallocations despite heavy U.S. equity inflows.

Historical data indicates that during U.S. market drawdowns:

• Asian equities typically outperform for about four months.
• Japan shows similar strength over five months, backed by local sectors and value stocks.