In recent months, financial institutions have begun cutting their dollar holdings and directing funds to European markets. This trend is the result of several factors, including internal political issues in the US and declining confidence in the Fed.
Investment Outflow from the US
Financial institutions, including major investment banks, have started to reduce their holdings in American stocks and bonds. According to the Financial Times, this is a long-term trend driven by chaos in Washington and falling confidence in the Federal Reserve. The US dollar has depreciated over 7% since the beginning of the year, prompting traders to look for safer investments in euros. 'It is happening. It will be slow but inevitable,' noted Luca Paolini, chief strategist at Pictet Asset Management.
Trends on the ETFs Market
Recent data shows that in April, €2.5 billion flowed out of European funds investing in US stocks and bonds, marking the largest figure since early 2023. In the first quarter of 2023, a Bank of America survey indicated that investors made their largest cuts to US stock holdings, signaling a rapid shift of capital toward Europe.
Pension Funds Reassessing Assets
Large pension funds worldwide, including those in Finland and Australia, have begun to decrease their exposure to US stocks, citing overvalued valuations and uncertainty caused by tariff decisions. Laura Wickström from Veritas Pension Insurance Company confirmed that they significantly reduced their presence in the US market. Similarly, in Denmark, pension funds are selling US stocks for the first time since 2022 and investing in European assets.
The increasingly noticeable exit of major institutional investors from American assets in favor of European ones reflects profound changes in the global financial market. The reasons lie not only in the current depreciation of the dollar but also in the more stable economic outlook of European countries.
