Global capital migration! Non-U.S. stock markets attracted a record $13.6 billion in July, while U.S. stocks have been sold off for three consecutive months
In July, global non-U.S. equity funds recorded the largest net inflow of funds in four and a half years, reaching $13.6 billion, as investors adjusted their asset allocation due to concerns about the U.S. economic outlook and high stock market valuations. Meanwhile, U.S. equity funds faced $6.3 billion in redemptions, marking three consecutive months of outflows. Regional market performance was mixed, with the MSCI Asia-Pacific and European indices significantly outperforming the S&P 500, and the depreciation of the dollar also amplified returns in international markets
According to Zhitong Finance APP, in July, global non-U.S. equity funds recorded the largest net inflow of funds in four and a half years, as investors adjusted their asset allocations due to concerns about the U.S. economic outlook, high stock market valuations, and a weakening dollar.
Since the beginning of this year, these funds have continued to attract capital as Trump's economic policies have diminished the appeal of the U.S. market.
However, the accelerated inflow of funds in July indicates that the trend of diversification is strengthening, particularly towards Europe and emerging markets—regions that are benefiting from a loose monetary environment and improved growth prospects.
According to LSEG Lipper data, global non-U.S. equity funds saw a net inflow of $13.6 billion in July, the highest since December 2021; meanwhile, U.S.-focused equity funds experienced $6.3 billion in redemptions during the same period, marking three consecutive months of capital outflow.
Derek Izuel, Chief Investment Officer of Shelton Capital Management, stated: "While tariff easing provided a boost in the second quarter, unresolved trade negotiations and policy deadlines at the beginning of the third quarter still pose ongoing risks. If growth differentials continue to narrow or the Federal Reserve maintains a restrictive monetary policy, uncertainty may once again trigger capital outflows from U.S. stocks."
The differentiated performance of regional markets has also become a key factor in the capital withdrawal from U.S. stocks. So far this year, the MSCI Asia-Pacific (excluding Japan) index has risen about 14%, and the MSCI Europe index has increased by over 19%, both significantly outperforming the S&P 500 index's 7.2% gain. Coupled with the dollar's depreciation of about 10% this year, this has further amplified the returns that U.S. investors are receiving from international markets.
Jim Smigiel, Chief Investment Officer of SEI, stated that while global asset allocation remains a focus, it is still too early to determine whether the recent capital flows represent a long-term trend. "We believe this is more of a strategic position adjustment from a geographical perspective rather than a deliberate underweighting of U.S. assets."
Valuation differences are also significant: the MSCI U.S. index has a forward 12-month price-to-earnings ratio of 22.6 times, far higher than the valuation levels of Asia (14.4 times), Europe (14.2 times), and the global index (19.7 times).
