The United States is no longer an "exception," but Europe is not ready? The world's largest sovereign fund warns: European stocks lack competitiveness, and positions have been cut from 26% to 15%!

Amid increasing political uncertainty in the United States and a relative weakening of market attractiveness, international capital is reassessing global allocations. However, European capital markets may face the awkward situation of being unable to "absorb" potential inflows of funds. The Norwegian Oil Fund, which manages $1.9 trillion in assets, recently issued a warning that European capital markets lack competitiveness due to structural issues, with its own allocation to European stocks having significantly dropped from 26% to 15% over the past decade.

According to a report by the Financial Times on June 9, the largest single investor in Europe—the Norwegian Oil Fund—has sounded the alarm. The fund typically holds about 2.5% of each listed company in Europe, and its movements are seen as an important barometer. The fund disclosed that its allocation to European stocks has significantly decreased from 26% to 15% over the past decade.

"A well-functioning European market is crucial for us," said Malin Norberg, the fund's head of market strategy. She emphasized that Europe has fallen behind the United States and some Asian markets in terms of business vitality and providing new opportunities for institutional investors.

The political turmoil in the United States unexpectedly offers a chance for European capital markets to regain attractiveness. However, the data and warnings from the Norwegian Oil Fund, which has seen its ten-year holdings halved, indicate that if the EU cannot quickly dismantle regulatory barriers and promote deep integration reforms, it may miss this historic opportunity for international capital to reposition itself, further lagging in the global financial competitiveness race.

Structural Malady: Regulatory Fragmentation

The Norwegian Oil Fund has pointed directly at the structural issues within European capital markets. According to reports, executives at the fund believe that structural problems, rather than political factors, are the larger drivers behind the decline in European investment proportions.

In a letter to the European Commission, the fund explicitly stated: "Key obstacles include significant differences in securities law, corporate law, and bankruptcy systems among member states."

This regulatory "fragmentation" severely increases the costs and complexities of cross-border investments, suppressing market vitality and liquidity. The fund calls for urgent action from the EU to reduce differences in securities and corporate laws among European countries, unify tax systems, especially withholding taxes, and simplify debt issuance processes.

Outflow of Listed Companies Intensifies Europe's Dilemma

Structural issues have led to a continuous outflow of high-quality listed resources from Europe, further weakening its attractiveness. The number of European companies held by the Norwegian Oil Fund has decreased by a quarter over the past decade, currently standing at only 1,546.

Emil Framnes, the fund's head of global equity trading, stated:

"We have seen a decline in the number of European companies we can invest in over the past few years, and our relative asset management scale in Europe has also significantly decreased."

European tech companies like Spotify and Klarna have chosen or plan to list in the United States, while giants such as Linde, CRH, and Arm Holdings have also moved their primary listing locations to the U.S. in recent years.

Large Institutional Investors Are Indeed "Withdrawing from the U.S. Market"

An earlier article from Wall Street Insight mentioned that large institutional investors are shifting funds away from the U.S. market, as trade policy turmoil and rapidly expanding government debt have shaken investors' confidence in U.S. assets The fund manager survey released by Bank of America last month showed that the allocation to the US dollar has experienced the largest underweight in nearly two decades.

Several large institutions, including the Caisse de dépôt et placement du Québec and Oak Tree Capital, have begun to reduce their investments in the US and shift towards more stable markets such as Europe and China.

This shift is particularly evident in market performance: the S&P 500 index has risen less than 2% this year, while the European Stoxx 600 index has surged by 9%. The US dollar is nearing a three-year low, having fallen 9% this year.

"The deficit problem is worsening," pointed out Seth Bernstein, CEO of AllianceBernstein, which manages $780 billion in assets. He noted that the current borrowing pace in the US is unsustainable. The signature tax reform bill from Trump is expected to increase federal debt by $2.4 trillion over the next decade, exacerbating pressure on US Treasuries