Moving Money: Skepticism Toward Trump Sparks Capital Outflow from America to Europe
Increased Uncertainties Towards Trump’s Presidency Prompt Money Shifts from U.S. to Europe - U.S. Investors Shifting Wealth Towards Europe amid Trump Doubt
Hey there! You won't believe this, but European stock markets have outperformed their American counterparts for the first time in a hot minute, all thanks to none other than President Donald Trump. International investors have reportedly pulled billions from American markets and funneled them into Europe, according to financial experts and analysts. What's the deal, you might ask? Good question. Let's dive in.
The gloating victors in Europe are Germany, Spain, and Italy, each boasting double-digit growth. The DAX has climbed around 16 percent since New Year's, despite some losses more recently, while US markets have only seen minimal gains of less than two percent.
"Significant movement of investor dollars from the USA to Europe, and other regions like Japan," says Ludovic Subran, Chief Investment Officer at Allianz, the firm responsible for managing nearly 2.5 trillion euros in assets. In the past, large amounts of money from around the globe have flowed into US financial markets. However, due to Trump's unpredictable policies and tariff threats, stocks in America are pricey relative to corporate earnings, while European stocks are more affordable. "The net position of portfolio investments in the USA was estimated at around 17 trillion dollars by the end of 2024," says Vincenzo Vedda, Global Chief Investment Officer at DWS, another major player in the world of investments.
"The 'rediscovery' of Europe"
According to Vedda, this trend has reversed. The huge overweight of US stocks that fund managers held at the end of 2024 has become a significant underweight. Interest has come from both Asia and the USA, but Europeans themselves have also rediscovered their "home market."
Secondly, many investors decided to cut their US exposure and diversify their portfolios, says Vedda. Apart from the political instability in America and the fact that many investors already had a large overweight in the USA, concern over further devaluation of the dollar was another significant factor.
Data on international balance payments isn't yet available, but equity ETF inflows and outflows are public. Jürgen Michels, BayernLB's chief economist, points to data from the US financial information service Morningstar. According to this, a whopping 26 billion euros flowed into European equity funds in the first quarter of 2025, with net outflows for an impressive 12 consecutive quarters prior to that. In April and May, another 22 billion euros net flowed into European funds.
"Waning trust in the USA..."
"The uncertainty triggered by US policy and dwindling faith in the USA is likely to have played a significant role in this shift," says Michels. Investors have been particularly concerned following Trump's announcement of "Liberation Day" and the largest US tariff increases since the Great Depression in the 1930s.
"... and a touch more optimism in Europe"
"The increased interest in European stocks is also fueled by growing optimism about Europe's future," says Michels. According to BayernLB's chief economist, the fiscal package of the new German government has contributed to this optimism. "Investors seem no longer willing to accept the historically astronomical premium of US stocks over European stocks," Michels says.
Italy More Steady than America?
Interestingly enough, not only are the stock markets catching everyone's attention, but Italy is currently paying significantly lower interest rates of about 3.5 percent for ten-year government bonds compared to the USA's 4.4 percent. Normally, Italian bonds are riskier due to the country's high debt burden. However, Allianz Chief Investor Subran notes that the rising US interest rates relative to Italy suggest that markets are becoming increasingly concerned about US government debt. On the flip side, Italy's fiscal situation has significantly improved, according to Subran.
US government debt has almost doubled over the past ten years, going from $18.1 trillion in 2015 to $35.4 trillion in 2024, according to data from the US Department of the Treasury. Trump significantly increased the debt even with a solid US economy during his first term, and his successor Joe Biden borrowed heavily to manage the COVID-19 pandemic. "Nonetheless, the US dollar will remain the dominant currency in the medium term, and US investments will remain the backbone of the global financial world, in part due to a lack of alternatives," says the chief investment officer of Allianz.
Trump may be known as "President Taco" in the financial world because of his tendency to back off from menacing threats. However, this trend might persist to a lesser extent in the second half of the year, as per a consensus of experts. "We think that the tendency of international investors to make their portfolios less US-heavy will continue," says DWS Chief Investor Vedda.
- The significant movement of investor dollars from the USA to Europe has resulted in European stock markets outperforming their American counterparts, with Germany, Spain, and Italy experiencing double-digit growth.
- The trend of investing in Europe has been fueled by political instability in America, high prices of US stocks relative to corporate earnings, and concern over further devaluation of the dollar.
- Investors have shown waning trust in the USA due to President Donald Trump's unpredictable policies and tariff threats, contributing to a shift in investment towards European stocks.
