Global Investors Shun US Equities (2 min read)
One of the most remarkable features of the post-2008 financial market regime has been the stellar performance of US equities compared to the rest of the world. US equities are up 220% since the end of 2008 versus up 60% for the rest of the world. But despite this, non-US investors have been steadily reducing and now actively selling their US equity exposure (see chart below).
This week’s release of May data for US capital flows shows foreigners sold again – admittedly the amount at $1.4bn is small, but there has now been thirteen consecutive months of selling. And this caution towards the US has seen global investors pile first into EM assets and then into European equities over the past ten years. In fact, the only period of considerable US equity buying was during the run up to President Trump’s tax cuts in 2017.
This ten-year trend is in sharp contrast to the 1990s when US equity outperformance coincided with a surge of foreign interest in US equities. The flow into US equities was also a mechanism through which the dollar strengthened. Today, equity inflows have failed to materialise, which makes me hesitant to link US equity strength to dollar strength. As a consequence, I’m more bearish on the dollar in the medium-term. On the flip side, however, the lack of foreign participation in the US equity rally suggests that they are not a crowded trade (unlike 1999/2000) and that foreigners at some point could buy US equities, which could drive US equities higher.
Chart 1: Foreign Investors Are Selling US Equities Despite US Rally
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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