For years, perhaps decades, the place to invest and the companies to invest in have been in the U.S.
Illustrating its vast scale, U.S. public equity markets reached over $60 trillion in market cap by Q4 2024—half of global equity market value, per SIFMA and World Federation of Exchanges data. The U.S. was just one-third of the global equity market in 2011.
The term ‘US exceptionalism’ has been coined to describe the country’s strong investment returns, institutions, innovation, corporate governance, and economic resilience.
In February 2025, JP Morgan asked, “Is US exceptionalism here to stay?”
Fast forward to April 2025, the world looks like a different place, and some would answer “no” to the above question.
U.S. President Donald Trump’s chaotic tariff policy implementation has alienated friends and foes, has put pressure on the U.S. dollar (USD), and has seen Europe and other markets attract new capital.
This has market watchers asking – will money from foreign investors flee the U.S. markets, and what could that mean for U.S. stocks and the USD?
Deutsche Bank (ETR:DBKGn) FX strategists George Saravelos and Michael Puempel tackled the question “[h]ow overweight is the world American assets?” in a recent special report.
To start their deep dive into the topic, the strategists highlighted that the nominal value of foreign ownership in US assets has grown to $25 trillion from $7 trillion in 2010. Stocks saw an astonishing sixfold increase from $3 trillion to $18 trillion. 90% of the appreciation in stocks can be traced to the US asset values rather than fresh flows.
The strategists explored European and Japanese ownership of U.S assets, noting that Europe has seen its portfolio holdings quadruple from 5% in 2010 to 20% in 2024. Looking at just equities, Europe has seen its U.S. holdings surge to 35% from 10% in 2010. Japan’s U.S. equity holdings have doubled from 8% in 2010 to 16% in 2024. Meanwhile, Japanese allocations to US Treasuries have gradually risen over the last ten years.
The role of FX hedging was also discussed. They explain that while portfolio flows influence FX, hedging activity can be just as important—often larger—since it reflects adjustments to existing asset holdings. With foreigners holding an estimated $26 trillion in U.S. assets, even a 1% rise in hedging could trigger $260 billion in dollar selling—matching total inflows into U.S. markets over the past two years.
“The increased weight towards US equities during the bull market years is what stands out the most from our analysis,” the strategists stated. “This has likely lowered the bar for repatriation flows driven by negative asset price moves, thus increasing the sensitivity of the USD to equity valuations. If US-centric trade actions are determined by market participants to represent a structural shift in policy over the next several years, eroding the US equity exceptionalism narrative, it is likely that investors will begin to increase allocations to non-US markets, presenting a headwind to the USD over the near to medium-term.”
A harmless view of the firm’s analysis is that foreign holdings have simply followed rising U.S. equity valuations and bond issuance. However, a more concerning view is that this has led to historically large, unhedged U.S. equity overweights in foreign—especially European—portfolios.
“Either way, our analysis leads to the conclusion that a sustained shift in foreign investor USD allocation closer to historical norms has the potential to generate huge negative dollar flows,” the strategists conclude.
