"Sell off USA 2.0"? Bank of America: Global rebalancing heats up, non-US assets in high demand.

Michael Hartnett, chief strategist at Bank of America, said that US trade policy is creating a "Shanghai New World Order," with investors shifting from the US dollar and US stocks to non-US assets. In a report, Hartnett wrote that the Trump administration's "letting the economy overheat policy means new 'everything but the US dollar' trades," and US exceptionalism is transforming into global rebalancing. Hartnett stated that this shift will boost non-US stocks, with potential benefits for commodity-producing countries in emerging markets due to the growth in demand for artificial intelligence. He also pointed out that investors are still underweight in their allocation to China and India. The flow of funds confirms Hartnett's views. According to data cited by Bank of America from EPFR Global, funds flowing into European, Japanese, and other developed international market equity funds this year totaled $104 billion, much higher than the $25 billion flowing into US stock funds. Since US President Trump announced historic tariff measures in April last year, US assets have been experiencing volatility, as his actions raised concerns about the end of the US dominance in the global economy and financial markets. Despite Trump subsequently withdrawing several tariff measures, the performance of the S&P 500 index has lagged behind similar international indices, with indicators of US dollar performance falling by 10% since the end of 2024. Since the end of 2024, Hartnett has favored non-US stocks. This judgment has proven to be forward-thinking - during the same period, the S&P 500 index rose by 15%, but lagged behind the MSCI Global Index (excluding the US) by 39%. The shift in funds has also been evident since the beginning of 2026. Since 2026, European, Japanese, South Korean, and emerging market indices collectively outperformed US stocks, coupled with the weakening of the US dollar boosting overseas returns, institutions have been reducing their concentration on US stocks, turning to global markets with lower valuations. Fund managers say that for a long time, the US stock market has been seen as the only main field worth participating in, but this perception is now starting to change. This trend is accelerating. Data from Morningstar shows that in January, investors flowed $51.6 billion into international stock exchange-traded funds, and since the end of 2024, monthly fund inflows have seen a significant increase. The weakening US dollar is a key driver of the increased attractiveness of overseas markets for investment. The US dollar has fallen by about 10% since its peak in 2022, increasing the relative value of overseas corporate profits and subsequently boosting the returns of overseas stocks. Although some investors refer to the current trend of overseas allocations as "selling US 2.0," fund managers are quick to remind that this wave of buying in overseas stocks is not necessarily "selling US 2.0," and most still believe that US stocks will continue to lead the global stock market higher, although the lead may not be as significant as in recent years. Todd Carney, chief investment officer at Ameresco, refers to the double-digit rise in the S&P 500 last year, stating, "If 'selling America' trades can give me a 16% return, I will continue to do so. We still believe the US market is very good." However, like other institutions, Carney also expresses concerns about the future of US stocks, including the continuously expanding national debt and the political and economic turmoil brought by Trump. He adds, "There is ample evidence to suggest that you don't necessarily have to sell US stocks, but should start reducing holdings, rebalancing, and adopting a more balanced approach to allocations." Investors have also been paying attention to the rotation of leading sectors within the US stock market. After three years of significant increases driven by the artificial intelligence investment boom, traders are now looking for the next wave of upward opportunities. Benefiting not only overseas stock markets, US small-cap stocks and blue-chip stocks have recently outperformed major benchmark indices. Although not all Wall Street institutions are rushing to allocate funds to overseas markets, Carney states that investors' "sole obsession" with US stocks is expanding. He says, "Many of our clients are now asking, why not allocate more to overseas company stocks?" "Investors may rediscover the mantra of international diversification in their allocations."