"Market performance in 2025 – the perfect argument for stock diversification"

Comeback of the “PIGS” – “Bankrupt Greeks” ahead of the Nasdaq 100

What do the following stock markets have in common? MSCI Greece, the Portuguese PSI 20, the Milan stock index MIB, and the MSCI Spain? Correct: these are the markets with the best returns in the first half of 2025 on the stock side. Greek stocks are up a sensational 40 percent, Spanish stocks have risen 24 percent, the PSI has gained 21 percent, and the MIB has risen 19 percent.

Portugal, Italy, Greece, and Spain were—ironically!—maligned with the unspeakable acronym “PIGS” by some market participants in Germany and other “northern euro countries” at the height of the euro crisis in 2011. (The BILD newspaper added another unpleasant highlight with “Pleitegriechen” (bankrupt Greeks). Meanwhile, the S&P 500 has lost seven percent and the Nasdaq 100 five percent this year from the perspective of euro investors. Not only have US stocks performed worse than European stocks, but the dollar has also lost significant value against the euro.

Incidentally, the stark underperformance of US stocks has also eaten into the medium-term balance sheet: from a euro perspective, the DAX is now ahead of the Nasdaq 100 in the three-year balance sheet – and even more so ahead of the S&P 500. In the wake of the dollar, American government bonds were sold off massively by nervous investors. Emerging market bonds denominated in local currencies have fared much better, gaining around ten percent – another irony. As a reminder, emerging market economies were given rather poor forecasts for 2025 due to high yields in the US.

Diversification – not just for “wimps”

This selection of highlights from the first half of the year shows that while some investors may dismiss diversification as a loser's strategy for wimps and opt for concentrated portfolios, in practice diversification ensures that portfolios can still expect returns even when the market's sunny boys fail. A few weeks ago, I highlighted the advantages of diversification at the level of the major asset classes (equities, bonds, commodities, cash, cryptos, and so on).

However, the principle of diversification should not only be taken to heart at the level of the major asset classes, but also with regard to the stocks in the portfolio. Although the correlation between individual markets is high, even if European and US stocks tend to move in lockstep, this says nothing about the amplitudes, i.e., the magnitude of the swings. (The US stock market is slightly up in 2025 from a dollar perspective.)

For years, we have also warned against the excessive US bias of the popular MSCI World ETF index (again in this column) and have already largely balanced European and US stocks in our advisory mandates in 2023. The warnings did not come because we knew that a US administration would set out to single-handedly shred the dollar and US government bonds, which were once considered unsinkable, but precisely because we knew that we did not know when (and which) trends on the markets would reverse and what wisdom would then dominate the discourse.

By Ali Masarwah, 30 June 2025, © envestor.de