Whalesbook
### Shifting Sands in Global Capital Flows
European investors, responsible for a significant portion of foreign holdings in U.S. equities, are exhibiting a growing reluctance to maintain their current exposure. This recalibration, first observed in April 2025 and noted as accelerating recently, is directly linked to the United States' protectionist trade stance and confrontational diplomatic approach. Vincent Mortier, Chief Investment Officer at Amundi SA, Europe's largest asset manager with €2.3 trillion ($2.7 trillion) in assets under management, stated that clients are increasingly seeking to diversify away from the U.S., characterizing the disentanglement process as potentially 'long and complex.'
### The Scale of European US Equity Holdings
Europeans hold approximately $10.4 trillion in U.S. stocks, with more than half of this concentrated in countries recently targeted by U.S. tariff threats. This substantial block represents 49% of all U.S. equities held by foreign investors, a figure that strategists at Scotiabank suggest could exert significant pressure on U.S. markets, bonds, and the dollar if diversification accelerates. The European Union collectively holds about $8 trillion in U.S. Treasuries, comprising roughly 24% of the total U.S. Treasury market.
### Performance Divergence and Strategic Reallocation
For years, U.S. equities consistently outperformed their developed-market counterparts. However, this trend shifted significantly in 2025. While the S&P 500 posted a 16.39% return, other global indices delivered stronger performances. Japan's Nikkei 225 surged 23.31%, South Korea's Kospi climbed 80.37%, and Canada's S&P/TSX Composite rose 28.28%, notably outpacing the S&P 500 by the widest margin in two decades. This performance divergence, coupled with a 9.1% depreciation of the U.S. dollar against a basket of major currencies in 2025, has prompted strategists like Michael O'Rourke of JonesTrading Institutional Services LLC to suggest that European investors might seek 'more opportunities elsewhere.' Raphael Thuin, Head of Capital Markets Strategies at Tikehau Capital SCA (which manages over €50 billion or $59 billion), noted that allocations to European assets could accelerate in 2026 as investors reposition.
### Shifting Trust and Historical Precedents
The underlying sentiment driving this diversification stems from a perceived abandonment of the rules-based international order by the U.S., leading to questions about the trustworthiness of the dollar and U.S. investments. Lars Christensen, CEO and head of analysis at Paice, argues that 'Americans live in the illusion that the US can do everything on its own,' and that 'if the US is not a rules-based society, we cannot trust the dollar to be a stable currency.' He posits that it is prudent for investors to reduce risk and diversify trade partners. This trend echoes past instances, such as Canadian pension funds being urged to reduce U.S. stock holdings following presidential threats in the prior year. While daily ETF flows have shown little immediate change, strategists acknowledge that the 'weight of the US will be readjusted moving forward.'
### Expert Views on the Future Landscape
Asset managers like Mathieu Racheter at Julius Baer & Co. (managing $662 billion) advise against being 'all exposed to US equities or US assets, especially not the dollar.' Benjamin Melman, Chief Investment Officer at Edmond de Rothschild Asset Management (managing $234 billion), stated it 'can't be ruled out longer term that the weight of the US will be readjusted.' Despite past volatility often subsiding, concerns linger on Wall Street that persistent U.S. belligerence could detach significant buyers from the market, adding to the list of risks for a market trading at historically high valuations.