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Your Guide to What Trump’s Second Season Means Washington, Business and World
Large institutional investors are moving out of the US market as fears of Donald Trump’s trade war and the country’s escalating debt over control of American assets in its global portfolio.
The US president’s volatile trade policy has shaken global markets in recent months, causing a sharp sale in the US dollar, leaving Wall Street stocks behind this year’s European rivals.
Trump’s groundbreaking tax bill is projected to add 2.4 tons to Washington’s debt over the next decade, and pressure on the US Treasury Department is also growing.
“People need to rethink,” says Seth Bernstein, CEO of Alliancebernstein, which manages $7800 billion in assets, and that requires exposure to the US.
“The deficit was there as a problem. It’s just getting worse,” he added. “Since the US continues borrowing, should we want to pause, pause and concentrate on one market when it combines the unpredictability of our trade policy with what is happening?”
The top executives of a large American private capital firm described Trump’s so-called liberation day as “a wake-up call to many people who were overweight in the US” when the president announced swept tariffs to Washington’s trading partners.
Just as institutional investors review the range of holdings in the US, Quebec’s Kayce de Port Escabec, Canada’s second largest pension fund, recently said it would reduce its national exposure. We plan to increase investments in the UK, France and Germany.
“The US has been the best place in the world to invest for a century, but we are questioning whether US exceptionalism is a bit unequal and beginning to think about whether we will place our portfolio accordingly.”
US stocks recovered losses following Trump’s announcement of his job on April 2. However, the S&P 500 is under 2% this year, comparing it to the 9% of the Stoxx Europe 600 index.
Despite retreating to many of Trump’s first tariffs, the dollar is close to its three-year low (down 9% this year).
Investors say the global dominance of the US economy and the depth of capital markets means it will remain the premier destination for global investments.
However, many question whether more than a decade and a half of the inflow and outperformance have pushed the US share of global stock market value by about two-thirds by the beginning of this year.
“We’ve started seeing early signs of investors moving away from the US,” said Richard Oldfield, CEO of Schroeders, UK asset manager.
In European markets, the presence of German spending in defense and infrastructure is expected to drive growth, and was a beneficiary of investor vigilance towards US exposure.
Blackstone vice-chairman Tom Nides said in Europe “we were very optimistic.” “The government is relatively stable here. Transferring money to Europe is certainly not a bad bet.”
New York-based investment firm Neuberger Berman has made 65% of its 20-30% private equity co-investment in Europe this year, according to Joana Rocha Scaff, head of private equity in Europe.
“I’m more interested in Europe,” she said. “It’s more than tariffs. The background of the European macro is not benign than the US, but it’s more stable. It’s a part of the domestic instability in the US, as well as the trade war, and it proposes a tax bill that affects non-US investors.”
Some investors question whether smaller, more fragmented markets in Europe and Asia offer meaningful alternatives.
“Europe still has curable growth, and there are very high levels of regulations, and China is still complicated,” says Oaktree Mark. “Where can we deploy a large amount of capital?”
