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Big institutional investors are shifting away from US markets as Donald Trump’s trade wars and the country’s escalating debt fuel fears about the dominance of American assets in global portfolios.
The US president’s erratic trade policy has shaken global markets in recent months, sparking a sharp sell-off in the US dollar and leaving Wall Street stocks lagging far behind European rivals this year.
Trump’s landmark tax bill, which is forecast to add $2.4tn to Washington’s debt over the next decade, has also increased pressure on US Treasuries.
“People need to rethink” their exposure to the US, said Seth Bernstein, chief executive of AllianceBernstein, which manages $780bn in assets.
“The deficit has been out there as an issue; it’s just getting worse,” he added. “I think it is untenable for the United States to continue borrowing at the pace it’s borrowing . . . When you couple that with what’s going on with the unpredictability of our trade policy . . . It should cause people to pause and consider: how much do you want concentrated in one market?”
A top executive at a big American private capital firm described Trump’s so-called liberation day, when the president unveiled sweeping tariffs on Washington’s trading partners, as “a wake-up call to a lot of people that they were overweight the US”.
As institutional investors review the extent of their holdings in the US, Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund, said recently it would reduce its exposure to the country — currently 40 per cent of its portfolio. It plans to increase investment in the UK, France and Germany.
“The US has been the best place in the world to invest for a century, but I’m starting to hear investors question whether US exceptionalism is a little less exceptional, and think about whether to position their portfolios accordingly,” Howard Marks, co-founder of $203bn alternatives manager Oaktree Capital Management, told the Financial Times.
US stocks have recouped the losses that followed Trump’s announcement of the duties on April 2. But the S&P 500 remains less than 2 per cent up this year, compared with 9 per cent for the Stoxx Europe 600 index.
The dollar is close to a three-year low — down 9 per cent this year — even though Trump has retreated on many of the tariffs he initially announced.
Investors say that the global dominance of the US economy and the depth of its capital markets mean it will remain the premier destination for global investment.
However, many are questioning whether more than a decade and a half of inflows and outperformance — which pushed the US share of global equity market value to around two-thirds by the start of this year — is headed into reverse.
“We have started to see the early signs of investors shifting away from the US,” said Richard Oldfield, chief executive of UK asset manager Schroders.
Markets in Europe, where a €1tn German spending spree on defence and infrastructure is expected to boost growth, have been a beneficiary of investors’ wariness over US exposure.
“We’ve been quite, quite optimistic” on Europe, says Tom Nides, a vice chair at Blackstone. “Governments are relatively stable here. Shifting money to Europe is certainly not a bad bet.”
New York-based investment firm Neuberger Berman has made 65 per cent of its private equity co-investments in Europe this year, up from 20-30 per cent in recent years, according to Joana Rocha Scaff, its head of European private equity.
“There is more interest in Europe,” she said. “It’s more than tariffs. The macro backdrop in Europe has not been more benign than the US but it’s more stable . . . It’s not just the trade wars but some of the domestic instability [in the US] and proposed tax bills that impact non-US investors.”
Some investors question whether smaller, more fragmented markets in Europe and Asia offer a meaningful alternative.
“Europe still has sclerotic growth and a very high level of regulation, and China is still complicated,” said Oaktree’s Marks. “Where else can large amounts of capital be deployed?”
