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Global equities: earnings rewarding patience

28. Oktober 2025

Krzysztof Janiga, CFA

Senior Equity ETF Strategist

Equities around the world have faced multiple headwinds this year, ranging from trade-driven chaos and stagflation risks to ongoing geopolitical challenges and valuation concerns. Yet, despite all these headwinds and increased volatility around “Liberation Day,” indices around the world reached all-time highs, and the MSCI ACWI IMI Index have delivered a 20% return year to date.¹ Global equities remain attractive relative to other asset classes, not only because of their upside potential, but also due to the nature of long-term risks, i.e., fiscal deficits and inflation against which bonds, the main alternative, provide limited protection.

Staying the course through cycles

Global equities have outperformed other asset classes by a wide margin over the last decade, despite multiple crises including Covid, sharp rate increases, geopolitical challenges and trade-related chaos. This performance was fueled by earnings growth which was led by technology giants. In early April 2025 we saw a sharp pullback as trade proposals sparked stagflation concerns while elevated uncertainty limited the visibility for corporates and investors. Equities have behaved similarly in the past, falling sharply in the wake of a crisis and rebounding afterwards.

While individual stocks may fall for prolonged periods due to structurally changing dynamics, investing in global diversified indices such as the MSCI ACWI IMI often rewards patience. This year has so far been a strong example of this. Potentially devastating tariff proposals were scaled back. As a result global equities rebounded, outpacing global aggregate bonds by 11.4%, and commodities by 6.5% year to date.²

Constructive macro backdrop

As trade uncertainty largely abated, GDP growth forecasts (consensus) have rebounded to a respectable 2.9% to 3.0% level in the next three years. Economic expansion is, however, uneven with US retaking the lead in the developed world with a sharp rebound in Q2 and into Q3.³ State Street Economists forecast 1.8% growth in 2025 and a reacceleration to 2.3% in 2026. Growth combined with the resumption of rate cuts creates a supportive mix for equities. Europe and Japan are experiencing slower growth, but fiscal tailwinds create upside potential while loose monetary policies ease financial burden for corporates. Emerging markets remain the leader of global growth. China has slowed to below 5%, yet its growth rate remains well above developed markets.

Growth, consumption and labour markets have remained robust despite higher interest rates, geopolitical tensions and trade uncertainty. From here, risks are skewed to the upside in the short to medium term, especially if AI adoption and automation lead to broader productivity gains. In the longer term, key downside risks include elevated fiscal deficits and the potential for a reacceleration of inflation driven by either trade disputes or broader economic decoupling. Bonds offer limited protection against those headwinds. Meanwhile, equities in long run can often inflate their earnings as companies, in many instances are able to, at least partially, pass on higher prices onto consumers.

Earnings driving performance

On balance, earnings growth has been robust over the last several quarters. In the first half of the year analysts downgraded their estimates due to expected tariff impact. As trade uncertainty abated, those downgrades were partially reversed, and stocks exceeded the lowered expectations bar with relative ease. Earnings-per-share (EPS) growth in 2025, however, is likely to remain uneven. Consensus expects the S&P 500 Index and the MSCI Emerging Markets Index to deliver 11% each. Europe and Japan are both forecast 2%.⁴ Earnings growth is key for sustained market performance and 2026 estimates point to a stronger EPS growth also in European and Japanese equities. If this materializes, a sustained performance broadening into those areas will be likely. Bottom line: the MSCI ACWI IMI Index is expected to achieve 9.2% EPS growth this year, and 14.1% growth in 2026.

Can earnings trump valuations?

The sharp global equities rally fuelled a rerating, as investors welcomed easing tensions on the trade front, the resumption of the interest rate cuts and a reacceleration of US growth. Valuations are stretched, limiting the upside and making short term corrections plausible if sentiment worsens. However, if corporates retain the ability to deliver robust earnings growth on the back of AI or supportive macroeconomic factors, global equities may continue to edge higher over the long run.

How to play global equities

The MSCI World Index is one of the most popular global equity benchmarks covering large- and mid-cap equities in the developed world. The MSCI ACWI Index also includes emerging markets large- and mid-cap equities, an area we believe should not be omitted given strong earnings growth prospects, undemanding valuations and a weaker US dollar. Arguably the most comprehensive benchmark, the MSCI ACWI IMI Index encompasses large mid and small caps from both emerging and developed markets covering more than $100 trillion USD of market capitalization. The addition of small caps allows investors to position for ongoing rate cuts and potential performance broadening. Last but not least, European investors may consider hedging their FX exposures with currency-hedged ETF share classes.

Figure 5: Global Equity Indices by Market Cap

Figure 6: Global Equity Indices by Number of Constituents

Global Developed Large and Mid-cap Equities

Global Developed & Emerging Large- and Mid-cap Equities

Global Developed & Emerging Large-, Mid-, and Small-cap Equities

Footnotes

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