Global stock markets posted impressive gains in 2025, but widening performance gaps and rising expectations suggest the new year could separate lasting winners from temporary momentum trades. The MSCI All Country World Index, which measures the performance of more than 2,500 large- and mid-cap stocks from developed and emerging markets, has risen more than 21% since the beginning of the year, hitting a record high of 1,024 on Dec. 26, according to LSEG data. The standout performance in 2025 was Colombia. The Latin American country’s stock market has soared more than 91% since the beginning of the year, emerging as the world’s best-performing country, according to data compiled by Morningstar for CNBC. At the other end of the spectrum is Denmark, whose stock market fell by more than 13%, making it the worst-performing country globally. Emerging markets dominated the performance table, with South Korea and Greece taking second and third place respectively. Deutsche Bank described 2025 as a market defined by “bursts of momentum but the risk of sudden course corrections,” and said global reflationary forces were driving asset prices broadly higher, even as valuations, sector concentrations and policy differences drove wide regional disparities. Latin America’s Fastest Growth Beyond Colombia, the region is a standout performer globally, with markets in Chile, Peru, Mexico and Brazil all up more than 45%. Analysts said Colombia’s rally was fueled by a combination of low starting valuations, concentrated index exposure and improving investor sentiment. “The market entered 2025 at historically low valuation levels and was significantly undervalued, so even small inflows had a huge impact,” said principal Jablonski Todd. The MSCI Colombia index is heavily weighted towards financials, particularly the largest banks, and has been gaining momentum. Political expectations are also fueling optimism. President Gustavo Petro is unable to seek re-election, and investors are betting on a transition to a more pro-market government. Emerging market stocks are on track to perform well in 2025, outperforming developed markets for the first time in five years. “Colombian assets still command a relatively high political risk premium, so there may still be room for that premium to come down,” said Alejandro Arreaza, Latin America economist at Cambridge Associates Barclays. The Colombian peso has appreciated about 15% against the dollar to 3,744.3 pesos this year, supported by central bank interest rate cuts and economic growth of about 2.5% to 3%. “The Colombian peso has appreciated significantly against the US dollar this year, contributing to strong total returns,” said Dominic Pappalardo, chief multi-asset strategist at Morningstar Wealth. Beyond Colombia, Latin America as a region stands out in this year’s performance. “Emerging market stocks are on track to perform strongly in 2025, outperforming developed markets for the first time in five years,” Cambridge Associates said in its year-end report. The company expects this trend to continue through 2026 due to deep stock and currency undervaluations, solid momentum, and improving macroeconomic conditions. Latin American stocks are trading at nearly 20-year lows, while the region’s currencies remain attractively priced, with real exchange rates about 11% below their long-term median. Denmark’s shackles Denmark’s downturn contrasted sharply with gains across Europe. “Denmark’s position as one of the world’s worst-performing stock markets this year can best be understood through index concentration,” said Stanya Cedda, European equity strategist at UBS. Novo Nordisk accounts for approximately 40% of the MSCI Denmark Index, effectively making it a “single stock agency”. “When 40% of the index is sold, diversification becomes a rounding error,” she says. Novo stock has fallen nearly 48% this year on concerns about the pricing of GLP-1 drugs in the U.S., a weakening pipeline outlook and downward revisions to earnings. Elsewhere, European markets such as Hungary, Spain, Austria and the Czech Republic posted solid gains and were ranked among the world’s top performers. Despite concerns about trade tensions and a strong euro, European economic growth showed unexpected upside, inflation moved closer to the European Central Bank’s 2% target and interest rates settled at levels that are highly supportive of bank profitability, strategists said. Bjarne Breinholt-Thomsen, head of cross-asset strategy at Danske Bank, said countries with a heavy banking sector were the biggest beneficiaries of the move. The STOXX European 600 Banks rose about 65% in 2025. “Europe’s smaller markets naturally have more sector concentration, and in 2025 that concentration worked to their advantage in financial-focused regions as opposed to Denmark’s healthcare-focused structure,” Thomsen said. Europe’s big “catch-up” rally may be over, but the situation for next year still looks healthy, with growth improving and inflation moving closer to target. Thomsen added that while returns in 2026 may not be as strong as in 2025, the environment remains supportive, particularly for cyclical sectors such as banks, which should continue to benefit from stable growth and improving credit demand. Asia’s complex situation By contrast, Asia has produced uneven results. South Korea was a standout in the region, jumping nearly 80% to rank second globally, while markets such as India, Thailand and Malaysia posted single-digit growth. South Korea’s economic boom has been driven by powerful companies in the technology world. “The Korean market outperformed mainly due to Samsung Electronics’ stock price recovery and SK Hynix’s continued outperformance,” said Lorraine Tan, director of equity research at Morningstar. Both companies account for more than a third of South Korea’s benchmark index and have benefited from rising memory chip prices and optimism about improving shareholder returns. .KS11 YTD Mountain South Korea’s stock market had an outstanding performance in 2025 Looking ahead, Deutsche Bank said Asia’s outlook depends on policy flexibility, currency movements and the sustainability of AI-related demand, and warned that earnings forecasts for parts of the region could be vulnerable as global trade momentum weakens. Goldman Sachs and State Street believe the region’s fundamentals will improve heading into 2026. Goldman said Asia is expected to benefit from easing global financial conditions, new fiscal support, particularly in China and Japan, and a gradual recovery in domestic demand, with Japan emerging as a relative bright spot due to corporate reforms, rising wages and increased capital spending. Where does the U.S. stand? The rally in U.S. stocks has been driven largely by artificial intelligence revenue growth and resilient consumer demand, and major financial institutions have chimed in amid fears of an AI bubble. The company’s modest 16% gain was overtaken by other major markets in 2025, but the S&P 500 and Nasdaq hit new all-time highs, driven by big-cap technology companies, according to Morningstar data. State Street said U.S. stocks benefited from strong capital spending, especially among technology and infrastructure companies, even as valuations reached historically high levels. Looking to 2026, the outlook remains constructive, but more selective. Goldman expects earnings growth to continue, supported by AI investment and easy monetary policy, but warned that high valuations and concentration risks could limit upside. State Street took a similar view, noting that the United States remains the core of global stock returns. However, he cautioned to be more discerning as the market is increasingly sensitive to earnings performance, policy changes and slowdowns in AI spending.
