By Ian Salisbury
International stocks are feeling scarier as the war with Iran upends global markets. While the news merits a gut check, foreign stocks still look like bargains worth picking up.
Most foreign markets have taken a beating since the war started, triggering a global energy crisis as Iran retaliated. Despite recovering a bit in recent days, foreign stocks are down an average 5% since the bombs and missiles started flying on Feb. 28, whereas the S&P 500 index has declined only 1%.
Investors have been fleeing international stocks for several reasons. The biggest one is energy. While the U.S. is a net oil exporter, most major European and Asian economies are importers and rely heavily on Middle East natural gas. Prices for liquefied natural gas have surged as shipping through the Strait of Hormuz has nearly halted.
Inflationary pressures are rising. The European Central Bank has been more aggressive than the U.S. Federal Reserve at cutting short-term interest rates. Morgan Stanley analysts had been forecasting two ECB rate cuts in 2026. Now they expect none.
The crisis has also revealed a hard truth: Investors want the safety of U.S. assets, even when the U.S. starts a war. Since the conflict began, the U.S. dollar, which spent much of last year on the slide, has rallied close to 1%. For investors who own foreign stocks in U.S.-dollar-based accounts, those declines translate into investment losses.
Conflicting signals from President Donald Trump, along with Iran's defiance, make it difficult to gauge the war's duration. If it ends soon, international stocks are likely to keep building on trends that helped fuel roughly 40% gains over the past year. If the war persists, investors face tougher questions.
Still, it's important not to overreact. Most of the factors that made international stocks attractive are intact, including relatively cheap prices, decent earnings growth, and diversification from the tech-dominated U.S. market.
Developed-country stocks, including Europe and Japan, trade around 15.3 times 2026 earnings. That's up from 14.3 a year ago, but still behind the S&P 500's 20.9 times. That discount reflects slower earnings growth abroad, but it also provides a margin of safety.
Vanguard's 10-year return forecast calls for developed-country stocks to return 4.9% to 6.9% a year, on average, compared with 3.9% to 5.9% for the U.S. That projection was published in January, but Vanguard Senior Global Economist Kevin Khang told Barron's that the firm wasn't planning any emergency updates.
"It's still a valuation story," says Khang. "In general, developed markets look more attractive compared with the U.S." And the war isn't upending the global race for advanced computer chips and other tech goods, fueling growth in Asian markets like Korea and Taiwan.
Emerging markets had been on a tear this year, up 14% before the war. They are down 7% since the conflict started. Korea has gone on a particularly wild ride. After returning more than 150% in the past year, the iShares MSCI South Korea exchange-traded fund tumbled 17% during the first four days of March. Energy-intensive chip makers Samsung Electronics and SK Hynix both slid more than 20%.
Yet there's still a case for emerging markets. The iShares MSCI Emerging Markets ETF trades around 13 times 2026 profits with earnings forecast to grow 33% this year. The gains are coming largely from holdings like Taiwan Semiconductor Manufacturing, Samsung, and Tencent Holdings.
The selloff hasn't fazed some investors. Korea should thrive with global demand chips and improving corporate governance, says Neuberger Berman's multi-asset co-chief investment officer Jeff Blazek. "Despite the fact that Korea doubled in the past year, it's still one of the cheapest markets in the world," adds Blazek, noting that Korean stocks trade at less than nine times forward earnings.
One way to sidestep Europe and Asia's energy problems is to focus on the Americas, where nations like Mexico and Brazil are energy giants in their own right. The broadest way to get exposure is with the iShares Latin America 40 ETF.
Among individual stocks, consider Walmart de México. It operates the U.S. retail giant's stores in Mexico and Central America. It's 70% owned by its U.S. parent, notes Julien Albertini, deputy head of First Eagle Investments global value team. But Walmex, as its known, trades at just 17 times earnings, compared with 42 times for Walmart.
There are similar defensive options in developed markets, according to Que Nguyen, chief investment officer of equity strategies at Research Affiliates. "If the war continues, we're going to see defensive sectors like food and healthcare hang in there," she says.
European food and healthcare stocks are trading at price/earnings ratios in line with or below historical averages, she notes. European consumer staples trade at 15.9 times, compared with an average of 16.8 times, according to Dow Jones Market Data.
Getting exposure to those sectors isn't easy with an ETF. Funds like iShares MSCI Europe healthcare Sector Ucits and iShares MSCI Europe Consumer Staples Sector Ucits don't trade in the U.S.
Still, investors will find plenty of names that trade in the U.S., including Roche, Nestlé and Unilever. Unilever, which Barron's highlighted in January , trades at 17 times 2026 earning and yields 3.5%.
One caveat: Currency moves can hurt or help. If the dollar keeps strengthening, it will pose a headwind for foreign stocks. The "sell America" theme was big before the war, pushing down the dollar. If it resumes, expect a tailwind for foreign stocks.
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 12, 2026 01:00 ET (05:00 GMT)
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