Investing in Global Markets in 2025–26: What Worked, What Didn't, and the Currency Lesson Most Indians Missed

This info is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results.

Over the twelve months ending May 29, 2026, an Indian investor fully invested in the Nifty 50 watched their portfolio fall 3.8% in rupee terms. Translated into US dollars — the currency in which global portfolios are measured — that loss deepened to 11.4%. In the same period, a passive investor tracking South Korean equities made 264% in dollar terms. Both are publicly tracked indices. The difference is geography, and the rupee.

This isn't about hindsight. It's about understanding the structural forces that drove global markets between 2021 and 2026 — and what they mean for anyone thinking about diversifying beyond Indian equities.

The Global Scoreboard

The data below covers 1-year USD total returns (MSCI country indices, net dividends reinvested, period ending May 29, 2026). It's sorted from the biggest winner to the biggest loser — and the spread is extraordinary.

That 264% at the top is not a typo. South Korea's MSCI index delivered that number over twelve months. Taiwan came in at 121.5%. Vietnam — a frontier market — returned 58%. At the other end: Indonesia at -38.3%, and India at -11.4%.

What separated the winners from the losers wasn't luck. It was two things: sector composition and currency.

The AI Hardware Supercycle: Why Seoul and Taipei Ran Away

The single biggest driver of global equity returns in 2025–26 was the physical infrastructure requirement of artificial intelligence. Training large AI models requires enormous quantities of advanced memory chips and logic chips — and the companies that make them are overwhelmingly concentrated in two countries: South Korea and Taiwan.

Taiwan Semiconductor Manufacturing Co. (TSMC) alone accounts for roughly 45% of Taiwan's TAIEX index by weight. Its stock nearly doubled over the twelve-month period. Taiwan's GDP grew 8.6% year-over-year — driven almost entirely by semiconductor exports for AI infrastructure. That GDP growth cascaded into corporate earnings, which drove the index.

South Korea's story was similar but even more dramatic. Goldman Sachs projected 220% earnings growth for KOSPI constituents in 2026 — a figure anchored in actual chip demand, not speculation. Analysts noted that historically 70% of KOSPI constituents traded below book value, so the 264% return was a combination of explosive earnings growth and a simultaneous valuation re-rating that had been overdue for years.

Beyond Asia: Four Very Different Reasons to Be Invested Globally

Not every strong market was about semiconductors. The diversity of drivers in 2025–26 is itself an argument for not concentrating in a single region.

Poland and Vietnam: The China Exit Trade

Poland returned 42.3% and Vietnam returned 58% in dollar terms — driven by a structural shift in global manufacturing away from China. As corporations sought alternatives to Chinese supply chains, manufacturing and logistics investment flowed into these countries. Poland became the primary industrial hub for Eastern Europe; Vietnam became the preferred destination for technology assembly and textiles in Southeast Asia.

Brazil and Mexico: Commodities and Nearshoring

Brazil returned 40.6% and Mexico 39.5%. Brazil was driven by commodity pricing (Vale and Petrobras were significant contributors) and, critically, by a strengthening Brazilian Real — more on that below. Mexico benefited from the US actively redirecting manufacturing investment away from China, absorbing billions in foreign direct investment in industrials, real estate, and infrastructure.

Spain: Old-fashioned Banking in a High-Rate World

Spain's 38.5% return came from traditional banking. With the European Central Bank keeping rates elevated, Banco Santander and BBVA generated record net interest margins and distributed much of that as dividends. No AI required.

The Currency Factor: A 7.5% Tax on Indian Investing

This is the part most investors underestimate. The Nifty 50 Total Return Index fell 3.8% in rupee terms over the year ending May 2026. Painful, but manageable. But the MSCI India index — the same Indian equities measured in US dollars — fell 11.4%. The gap of roughly 7.5% is entirely attributable to rupee depreciation against the dollar.

Brazil illustrates the flip side. The MSCI Brazil index, hedged back to USD, returned 18.4%. Unhedged — meaning the investor kept full exposure to the Brazilian Real — returned 40.6%. Local currency return: 26.4%. The Brazilian Real strengthened against the US dollar, adding over 14 percentage points of return for dollar-denominated investors who held unhedged positions.

Japan presents a third pattern. In May 2026 alone, the Nikkei gained 11.9% in yen terms, but only 10% in dollar terms — the weak yen created a mathematical drag. Yet Japan's underlying earnings growth was powerful enough that USD investors still earned 31.7% for the full year. Currency was a headwind, not a deal-breaker.

Was US Exposure Enough?

For Indian investors who ventured internationally over the past few years, the default choice was largely US-centric — S&P 500 feeder funds or international mutual funds with heavy US weighting. That was a sound decision, and it delivered: the MSCI USA returned 28.9% and the S&P 500 Total Return delivered 29.8% in dollar terms.

But US returns in 2025–26 were themselves deeply unequal. The S&P 500 Growth index returned 35.2%, while the S&P 500 Value index returned 20.4% — a 15-percentage-point divergence within the same index, driven by a handful of mega-cap technology companies dominating the AI infrastructure narrative. Buying "the S&P 500" averaged these two very different outcomes.

Beyond the US, markets like Poland (+42.3%), Brazil (+40.6%), and Spain (+38.5%) each delivered strong returns through mechanisms entirely unrelated to AI — nearshoring, commodity pricing, and high-rate banking respectively. A portfolio with meaningful US exposure captured one source of return. A genuinely diversified global portfolio had the potential to capture several.

If you're evaluating how to access international markets from India — whether through international mutual funds, feeder funds, or direct equity routes under the LRS — our guide on investing in US stocks from India covers the practical mechanics, costs, and tax treatment of each approach.

The Diversification Lesson from 2021 to 2026

The five-year data makes the case for geographic diversification more clearly than any single year could. Over that full period, the drivers of returns rotated significantly across regions and sectors. The US delivered structural strength (MSCI USA: +15.1% annualised over five years). Taiwan and South Korea delivered explosive AI-driven gains. Brazil, Mexico, and Poland delivered returns from commodity and nearshoring cycles. Spain benefited from the rate environment.

No single geography captured every return. And critically, the risks were real too. Indonesia's -38.3% one-year return — compounded from weak commodity exports and a collapsing rupiah — is a reminder that international diversification requires understanding currency stability and sovereign-level dynamics, not just picking countries with good recent performance.

The data from 2021 to 2026 does not argue for chasing the best-performing geography. It argues for holding a portfolio that isn't entirely dependent on one economy's fortunes — and for understanding, clearly, how much of your return (or loss) is driven by markets, and how much by the currencies those markets are denominated in.

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