"Low Sustainability of Relative Outperformance in Non-U.S. Stock Markets"

There are projections that the likelihood of stock markets outside the United States outperforming in the second half of the year is low. The recent strength in non-U.S. markets has been characterized more as a technical rebound rather than a result of structural changes.

On June 26, Oh Hanbi, a researcher at Shinhan Securities, stated in a report titled "Non-U.S. Stock Markets: Now Is the Time for the Real Winners to Emerge," "The most notable feature of the global stock market in the first half of the year was the outperformance of non-U.S. markets." She explained, "The fundamental reasons for this outperformance were primarily seasonal factors and the rapidly unfolding weak dollar environment." She added, "In addition, policy momentum centered on non-U.S. countries also came to the fore."

However, she predicted that it would be difficult for the relative strength of non-U.S. markets to continue in the second half of the year. Oh noted, "Since 2010, non-U.S. markets have lost their advantage in corporate earnings and have shown a long-term underperformance compared to the U.S." She explained, "This is due to the fading of the global supply chain and the long-term dominance of growth stocks driven by technological innovation."

She continued, "Therefore, the recent relative strength of non-U.S. markets is more likely a technical rebound based on past patterns rather than a structural shift." She emphasized, "Considering previous cases, the temporary pause in dollar selling, and the possibility of tariff-related noise resurfacing in July, the continued outperformance of non-U.S. markets without structural fundamentals is unlikely to be sustainable."

Oh stated, "The period of relative outperformance driven by expectations that supported non-U.S. markets throughout the first half of the year is gradually coming to an end." She added, "In an environment where macroeconomic uncertainty is increasing and the gap in earnings momentum is widening, benefits are clearly concentrated only in countries with proven structural competitiveness, rather than across the entire index."

She explained, "The common characteristic among countries that could continue to outperform in the second half of the year is high IT exposure, such as Korea, Taiwan, and Hong Kong." She added, "This can also be summarized as countries where fundamentals are actually improving, including Poland and South Africa."