Analysts at Bernstein are predicting what they call a “great rotation” out of US equities. This trend began in mid-February 2025 and may reshape global financial markets.
According to Bernstein, this divergence between American and Asian equities is gaining traction. Since the beginning of 2025, the S&P 500 has declined by 8.6%, while Japanese and Asian indices have managed to get modest gains of 0.7% and 0.3%, respectively.
The firm attributes the shift to the eroding sense of US market exceptionalism, exacerbated by uncertainties surrounding President Trump’s tariff policies and their impact on the dollar and Treasury yields. Bernstein believes Asia will continue to outperform, with Japan, India, and South Korea standing out as the most attractive markets.
Bernstein notes that there have been 12 periods since 1989 when Asian equities (excluding Japan) outpaced US stocks during downturns.
Current fund flow data appears to confirm the trend. While US equities saw the highest inflows in 2024, the last week of March 2025 marked the first major capital outflow, with an estimated $20 billion moving to Europe and $7 billion to Japan. A similar shift occurred again after April 9.
“Despite all the talks about the great rotation out of the US, the amount of money that has gone into US equities is way ahead of what has gone into other regions,” analysts at Bernstein said.
In Japan, this realignment has already been in motion for five months, with domestically driven sectors and value stocks leading performance. Bernstein expects this trend to continue, supported by Asia’s favorable valuations and earnings outlook.
Japan is currently in a profit expansion cycle, with GDP growth projected at 0.9% for 2025. Meanwhile, broader Asia is expected to see a slight contraction of 0.8%. US equities remain expensive relative to book value, while Japanese stocks offer attractive forward P/E ratios near 13x, close to historical lows.
