Global Equity Markets Mid-2025: A Tale of Divergence

As we cross the halfway mark of 2025, equity markets around the globe are painting a complex picture. The latest midyear data, visualised by Visual Capitalist and sourced from TradingView, reveals significant divergence in returns across regions, sectors, and economies.

While some markets are surging, others are stalling—or even shrinking. This divergence underscores the importance of understanding global macroeconomics and adjusting portfolio strategies accordingly.

Let’s break down what’s happening, region by region, and explore what it means for investors like you.

The Big Winners: Asia and Europe Take the Lead

🇭🇰 Hong Kong / China Large Caps (Hang Seng) – +19.3%

The Hang Seng Index's standout performance marks a striking comeback after years of turbulence. Three major catalysts drove this:

• Stimulus measures from Beijing helped boost investor confidence.

• Reopening tailwinds, especially in tourism and consumer discretionary sectors.

• Valuation appeal: Many Hang Seng-listed stocks were trading at multi-year lows, attracting global bargain hunters.

Foreign investors, weary of overvalued Western tech stocks, are rediscovering the potential of Asia’s giants.

🇩🇪 Germany (DAX 40) – +18.1%

Germany has quietly posted one of its strongest half-year equity gains in over a decade. Key drivers include:

• A resurgent auto sector, led by EV exports.

• The industrial backbone of Europe benefiting from stable energy costs.

• Fiscal easing by the EU and a more dovish European Central Bank (ECB).

🇮🇹 Italy (Milano Italia Borsa) – +15.4%

Italy’s impressive performance stems from:

• A revitalised banking sector.

• Major EU infrastructure funding for green and digital transitions.

• A surge in domestic consumer confidence after inflation eased.

Solid Contenders: Mid-Range but Strong Momentum

🌍 Emerging Markets ex-China – +10.5%

India, Brazil, Vietnam, and South Africa led the charge. Global capital is flowing toward:

• Younger populations,

• Stable currencies, and

• Digital infrastructure growth.

India, in particular, has seen record IPOs and private investment this year, positioning it as the "China alternative" for many institutional investors.

🇬🇧 UK (FTSE 100) – +8.3%

Though often dismissed due to Brexit, the FTSE 100 has quietly outperformed the S&P 500. Why?

• Heavyweight stocks in oil, mining, and finance,

• A cheap pound, and

• Lower exposure to volatile tech stocks.

🇨🇦 Canada (TSX Composite) – +7.2%

With stable banking, a booming housing market, and demand for natural resources, Canada continues to attract long-term investors. The country is also becoming a key player in critical minerals like lithium and rare earths.

The Middle Pack: Modest Gains, Mixed Sentiment

🇪🇺 Europe (STOXX 600) – +7.5%, 🇨🇭 Switzerland – +4.7%, 🇫🇷 France – +4.1%

These mature economies offered steady if unspectacular gains:

• Switzerland’s pharmaceutical giants helped weather volatility.

• France’s luxury sector faced headwinds in China but benefited from European tourism.

• The STOXX 600 reflects diversified growth, from banking to renewables.

🇺🇸 U.S. Tech (Nasdaq 100) – +3.0%

U.S. tech has lost some steam. AI darlings like Nvidia and Microsoft are still growing, but:

• Apple’s hardware slowdown and

• Tesla’s production issues are weighing on sentiment.

Valuation pressures are mounting, and analysts suggest this could be a year of “mean reversion” in tech.

The Laggards: Dragged by Policy, Inflation, or Valuations

🇨🇳 Mainland China (SSE Composite) – +0.9%

Despite repeated stimulus attempts, China’s domestic market underwhelmed:

• Real estate woes persist.

• Local governments are heavily indebted.

• Consumer confidence is tepid at best.

This stagnation stands in stark contrast to Hong Kong’s boom.

🇺🇸 U.S. Large Caps (S&P 500) – +1.6%

The S&P 500’s limp returns are the result of:

• Sticky inflation, forcing the Fed to delay rate cuts.

• Political uncertainty in an election year.

• Rotations out of growth into safer bets.

Though corporate earnings remain healthy, investors are hesitant to chase prices at current valuations.

🇯🇵 Japan (Nikkei 225) – -4.0%

After a strong 2023, Japan saw a pullback:

• The yen strengthened, hurting exporters.

• Wage inflation has not materialised as hoped.

• The Bank of Japan’s shift away from ultra-loose monetary policy unsettled investors.

Bottom of the Barrel: U.S. Small Caps (Russell 2000) – -5.8%

Higher interest rates and credit tightening have hammered small caps:

• These companies have higher debt burdens.

• They rely more on local U.S. demand, which is softening.

• Many investors are opting for “safer” large-cap names or international plays.

What This Means for Different Types of Investors

For Conservative Investors

Focus on:

• Switzerland (defensive sectors),

• Canada (commodities), and

• Blue-chip dividend stocks in the UK.

For Growth-Oriented Investors

Look into:

• India and Brazil ETFs,

• Select tech plays (AI, semiconductors), and

• Green infrastructure ETFs across Europe.

For Contrarian Investors

Opportunities may exist in:

• U.S. small caps (for a future rebound),

• Mainland China (select sectors), and

• Japan (as valuations reset).

What This Means for Investors

1. Diversification Pays Off Investors with global exposure—especially to Asia and Europe—are seeing stronger returns than those concentrated in U.S. markets.

2. Value Rotation Still Has Legs Cyclical and value-oriented sectors like financials, energy, and industrials in Europe and Asia are delivering solid gains, while U.S. growth stocks are slowing.

3. Emerging Markets Are Worth Watching With China lagging, broader EMs like India, Brazil, and Vietnam are becoming important players in global portfolios.

4. Watch Central Banks Closely Rate policies from the Fed, ECB, and Bank of Japan are moving markets dramatically. Investors should be mindful of rate sensitivity in their holdings.

ETF Suggestions to Capture the Trends

Here are some global ETF ideas for each category:

Market Focus	ETF Example
Germany	iShares MSCI Germany ETF (EWG)
India	iShares MSCI India ETF (INDA)
UK	iShares MSCI United Kingdom ETF (EWU)
Emerging Markets (ex-China)	SPDR EM ex-China ETF (EMXC)
U.S. Small Caps (Recovery)	iShares Russell 2000 ETF (IWM)
Europe (Broad Exposure)	Vanguard FTSE Europe ETF (VGK)

Outlook for H2 2025

As we move into the second half of the year, key themes to monitor include:

• Will the Fed cut rates in Q3?

• Can China's stimulus finally gain traction?

• Will European consumer demand catch up to industrial strength?

• Will Japan surprise again with earnings?

Moreover, geopolitical flare-ups (such as Taiwan, Ukraine, or Middle East tensions) could create both risk and opportunity.

Final Thoughts

2025 is shaping up to be a year of geographic and sectoral divergence. While the “Magnificent Seven” may no longer dominate headlines, new opportunities are emerging in overlooked markets and industries.

For investors, the message is clear: Global diversification isn’t just smart—it’s essential.

By spreading your investments across high-performing geographies and being mindful of macroeconomic trends, you’ll be better positioned to capture upside and manage downside risk.

Sources:

• Visual Capitalist – Global Equity Midyear 2025

• TradingView – Market Data

• Reuters: China's Stimulus 2025

• Bloomberg: Tech and U.S. Market Analysis

• Financial Times: Europe Economic Pulse

RISK WARNING: All investing is risky. Returns at not guaranteed. Past performance and case studies are no guarantee of future results.

Disclaimer: The content provided on this blog is for informational purposes only and does not constitute financial advice. The opinions expressed here are the author's own and do not reflect the views of any associated companies. Investing in financial markets involves risk, including the potential loss of your invested capital. Past performance is not indicative of future results. 

You should not invest money that you cannot afford to lose. Mentions of specific securities, investment strategies, or financial products do not constitute an endorsement or recommendation. The author may hold positions in the securities discussed, but these should not be viewed as personalised investment advice. 

Readers are encouraged to conduct their own research and seek professional advice before acting on any information provided in this blog. The author is not responsible for any investment decisions made based on the content of this blog.

Alpesh Patel OBE

www.campaignforamillion.com