Global capital flows are changing: Increasing positions in Central and Eastern Europe!

Global capital flow trends are changing: the U.S. is "losing favor," while Europe and China are "rising."

Barclays, in its latest research report, reveals a new trend in global capital flows: after the investment boom following Trump's rise to power, institutional investors have become more cautious, leading to a divergence in global capital flows.

The most striking change is that funds are flowing from the U.S. to Europe and China. The report shows that in the past month, inflows into U.S. stocks have dropped to $33 billion, the lowest level since August of last year, while inflows into European stocks (excluding the UK) have significantly increased, reaching $10 billion so far this year, reversing nearly half of the capital outflow since the U.S. elections.

Since the rise of DeepSeek in February, foreign capital inflows into the Chinese stock market have also increased significantly, especially in technology stocks, pushing the Hang Seng TECH Index into a technical bull market.

"Trump Fatigue"? U.S. capital attraction weakening

The report indicates that although in February, the U.S. stock market remained the primary destination for capital inflows, the pace of inflows has clearly slowed. At the same time, the strength of the dollar has also weakened, and bullish positions in technology stocks have been reduced.

Institutional investors' preference for cash continues, and since the beginning of the year, they have shown a cautious attitude towards capital allocation. Barclays states that the uncertainty brought by Trump, along with recent weak U.S. economic data, may make them even more cautious.

Europe's "Comeback": U.S. investors return, inflows reach a three-year high

While inflows into the U.S. have slowed, Europe (excluding the UK) has seen a significant return of funds.

The report shows that in February, stock inflows into Europe (excluding the UK) significantly increased, reaching the highest level since January 2022 last week, driving European stocks to outperform the market significantly last month.

The report points out that CTA (Commodity Trading Advisors) has been the main driving force behind the recent outperformance of the European stock market, as they have significantly increased their exposure to the region since the beginning of the year. In fact, compared to their long-term historical exposure, CTAs have even higher positions in Europe than in the U.S.

The pessimism among institutional investors has eased, and the significant funding gap that emerged due to the U.S. elections has been closed. Not only are local European investors increasing their holdings, but American investors are also starting to return, although the current inflow of funds is still relatively small compared to previous investment enthusiasm.

However, long-short hedge funds have not fully closed their short positions established after the U.S. elections. The report indicates that this means not everyone has reduced their pessimism towards Europe, and there may still be more room for European stock markets to catch up in terms of positioning.

China Becomes a "Highlight": DeepSeek Attracts Funds to Tech Stocks

The report shows that since the rise of DeepSeek, foreign investors have begun buying Chinese tech stocks, boosting the overall market performance, with the Hang Seng TECH Index entering a bull market.

The report also adds that there was some capital outflow from the Chinese stock market in February, mainly driven by domestic investors, possibly due to recent strong market performance leading to profit-taking.