Investors say the dumping of U.S. assets supports a European revival market, indicating that long-term relocation of pension funds and other large institutional monetary managers has begun to reduce their huge exposure to dollar investments.
Wall Street Bank said they saw investors managing trillions of dollars of assets start to cut U.S. stances, fearing unstable decisions, President Donald Trump’s attack on the Fed’s chairman and the consequences of the trade war.
U.S. stocks have almost recovered losses since Trump’s so-called “Liberation Day” tariff announcement shocked global markets last month, but they are still in a negative territory this year, lagging behind their global counterparts. The dollar has fallen more than 7% this year, with some investors pointing to flying from the U.S. to other assets, such as German government debt.
"This is happening," said Luca Paolini, chief strategist at Pictet Asset Management. "He added that the relatively cheap stock market and catalysts for European economic growth, such as the German-led defence spending frenzy, make Europe the "most logical" destination.
Investors allocated “the biggest ever” cut to U.S. stocks in March, and the shift from the world’s largest economy and Europe is the sharpest since 1999, according to a survey by Bank of America.
The outflows traded by European exchanges traded on the European exchanges invested in U.S. debt and stocks — an area used by analysts to view the shift — and then out of 2.5 billion euros in April, the highest level since early 2023, according to Morningstar Direct. Although fixed income equivalents attracted some money, the same equity ETF showed further outflows in early May.
Kenneth Lamont, head of Morningstar, said the sale of dollar assets “reversed the long-term trend in which U.S. assets have been the beneficiaries of strong net inflows.” This reversal is partly due to the transformation of “patriotism” among European investors into the domestic Ministry of Defense.
To show a huge change in global capital, the euro has soared in recent weeks with German government bonds, confusing the usual pattern and suggesting investors are seeking non-dollar safe haven assets. Investment banks reported ongoing selling of the dollar and buying euros in spot trading of institutional investors.
Thanos Vamvakidis, head of global G10 FX strategy at Bank of America, said the bank has begun to see “selling real money (institutional) dollars only in recent weeks.” George Saravelos, head of research at Deutsche Bank FX, said it "has sold a large amount of dollars in sales from real money investors over the past three months."
Finland's Veritas pension insurer reduced its U.S. stock exposure in the first quarter. Chief Investment Officer Laura Wickström told the Financial Times that U.S. stocks are valued at high valuations, and she also quoted “The uncertainty and communication of tariffs…the confusion and unpredictability associated with you have made us question the idea that you should pay this premium.”
Chief Investment Officer John Pearce said in a podcast last month that his fund has a big impact on U.S. assets and that it will be "questioning this commitment."
"Frankly, I think we've seen peak investments in U.S. assets," he added.
The Danish pension fund began its first sale of U.S. shares in the first quarter since 2022, the largest purchase of European listed shares since 2018.
Sam Lynton Brown, head of global macro strategy at BNP Paribas, said if European pension funds reduce their allocation to 2015 levels, it would be equivalent to selling up to €30 billion in dollar assets.
The United States has been a beneficiary of large capital inflows for years, attracted by its economic growth and the liquidity and strong performance of its markets.
"If capital is globalized in reverse, the problem becomes its distance and speed," said John Butler, rate strategist at Wellington administrator. "This (trend) should lead to net capital outflows from the U.S. and other markets, with structural impact on the U.S. dollar, stock and bond markets."
Analysts say how far this trend can go, given the depth and liquidity of the U.S. stock market and the depth and liquidity of the fiscal market close to $30.
But even U.S. pension funds are considering their position. "One of the unexpected risks and consequences of opening Pandora's tariff box to Pandora" could be its largest trading partner to sell U.S. assets," Scott Chan, chief investment officer of the $35 billion state teacher retirement system, said at a board meeting this week.
“For us, we need greater diversity because we are very focused on U.S. assets,” Chen said.
The dollar’s slide this year is particularly painful for foreign investors who have U.S. assets but don’t hedge currency risks.
Bank of America estimates that if they rebuild these hedging levels into the previous hedging level, it could mean that European investors have a monetary risk of USD assets of $250 million. Such activity is expected to put downward pressure on the US dollar.
However, many investors are not in a hurry to consider the risk of betting on the long-term growth of the U.S. market.
“We are having an internal debate about our excellence and whether we reduce our distribution,” one investor said. “Experience says you need to be cautious about these shifts and betting on the U.S. is not going well.”
Other reports by Alan Livsey