Foreign investors are selling US stocks. How long it could last.
Source: Live Mint
Global investors are selling U.S. stocks en masse, reallocating money elsewhere as Washington amps up volatility with tariffs.
European investors had removed a net $2.374 billion from U.S. equity exchange-traded funds in March as of Tuesday’s close, after pulling out about one-sixth that amount in February. New money was instead put into local European equity ETFs, as well as those focused on the Asia-Pacific region and emerging markets, data from the research firm ETFGI show.
Taking a more global view, the situation is the same. Fifteen of the largest asset managers, together housing more than $20 trillion, have “meaningfully reduced” their positions in U.S. equities relative to what they reported in a mid-February survey, Citi said Tuesday. International stocks, excluding China, attracted more money.
Bank of America’s March Global Fund Manager Survey showed the biggest percentage-point drop on record in the share of money allocated to U.S. equities. Citi and BofA surveys also show managers have a pessimistic view about U.S. exceptionalism, the once widespread view that markets here were the go-to destination for outsize returns.
The exodus comes as investors await April 2, the day when President Donald Trump plans to impose so-called reciprocal tariffs to match the levies by other countries on U.S. goods. Countries including Canada and China have retaliated against Trump’s tariffs, but most others are choosing to stand back for now.
Trump refers to April 2 as “Liberation Day.”
The shunning of U.S. stocks makes sense, considering that many Wall Street firms, including Barclays, expect tariffs to hurt U.S. economic growth and for S&P 500 earnings, in turn, to take a hit. On Wednesday, Barclays strategist Venu Krishna predicted $262 in aggregate earnings per share for the S&P 500 this year, down from $271 earlier. Goldman Sachs strategist David Kostin has lowered his forecast for full-year earnings growth to 9% from 11%.
Barclays recently cut its year-end price target for the S&P 500 to 5900 from 6600. Goldman lowered its call to 6200 from 6500.
Now, the big question is whether the reallocation is the start of a sustained change in how money flows among the world’s largest markets, or simply amounts to a bump in the road for the U.S. The S&P 500 is down 2.9% so far in the first quarter, dragged lower by this month’s 4.1% decline. Europe, China and. U.K. markets have each outperformed by many percentage points since the start of the year.
One way to think about foreign markets’ relative strength is to attribute it to one-off factors like fiscal stimulus in Germany and China and call it a normalization after the past few years of underperformance.
Still, economic uncertainty in the U.S. and accelerating growth in Europe and China means the next quarter is likely to be “one where US stocks will face headwinds and non-US stocks will benefit,” said Nicholas Colas, co-founder of DataTrek Research. “We still like US equities for the long term.”
The argument for giving up on U.S. equities for good is hard to make given the given the long-term attractiveness of American companies, considering their pace of innovation and dominant positions. Some companies’ market values surpass the gross domestic products of developing nations.
Investing in U.S. equities also means holding the dollar, the world’s leading reserve currency. Some 88% of currency trades involve the dollar, compared with 31% for the euro and 17% for the Japanese yen.
About one-third of the U.S. equity market is owned by foreign investors. That isn’t a large chunk, but the more foreign investors pull back, the harder it will be for U.S. equities to beat their rivals overseas. That could add to negative perceptions of the U.S. stock market.
