Global Investment Shifts Away From US Markets as European Assets Gain Favour

Investment sentiment is experiencing a significant transformation as global investors increasingly distance themselves from US stocks and the dollar during President Trump’s second term, according to Bank of America’s latest market analysis.

The research reveals a marked shift towards European and emerging markets, with investor confidence rebounding to levels seen before Trump’s controversial ‘liberation day’ tariffs announcement in April. The US market’s dominance appears to be waning, with investors demonstrating unprecedented wariness towards dollar-denominated assets in two decades.

Whilst eurozone nations benefit from this capital redistribution, the UK market maintains a cautious position, with a 4 per cent net balance of respondents reporting underweight positions. This represents an improvement from historical trends, where global investors have traditionally maintained significantly lower UK allocations relative to global index weightings.

The market’s previous pessimism has largely dissipated, with a dramatic reversal in recession expectations. The shift moved from 42 per cent anticipating a downturn in April to 36 per cent now dismissing such concerns. This comprehensive survey, encompassing 190 fund management leaders overseeing $523 billion in assets, was conducted in early June, capturing the period after US-China trade tension de-escalation but before recent Israel-Iran conflicts.

Cash positions have reduced from 4.8 per cent to 4.2 per cent, signalling increased risk appetite among fund managers. The survey highlighted unprecedented underweight positions in US dollars, while European and emerging market equities attracted substantial interest, with a net 35 per cent of investors favouring eurozone stocks.

Market recovery has been robust since Trump’s tariff announcement, with the S&P 500 surging 20.6 per cent from its April low. This recovery pattern, dubbed the ‘Taco’ trade (Trump Always Chickens Out), reflects market confidence in the president’s tendency to moderate his initial aggressive positions. The FTSE 100 and Stoxx Europe 600 have similarly rallied, posting gains of 15 per cent and 15.4 per cent respectively.