Investors see the beginning of a tectonic move away from US markets

The global money flows are being upended by a historic trade war, the proposed European fiscal bazooka of $1.2 trillion and China's rise as the leader in the tech race. This could be a turning point, with investor capital moving away from the United States.

China released more stimulus on Tuesday and pledged to make greater efforts in order to mitigate the impact of a escalating U.S. Trade War. The likely next German government had agreed to the largest overhaul of fiscal policy since the reunification.

The U.S. trade war, which began this week, is hurting the mood both inside and outside of the world's largest economy.

Investors have bet heavily on the "U.S. exceptionalism" for the past three years. The country has been ahead of other countries in terms of economic growth, stock market prices, artificial intelligent and many other areas.

Tim Graf, State Street Global Markets' head of macro strategy in EMEA, said: "The U.S. has changed, and the world is now saying that we must adapt, as the U.S. no longer is a reliable trade partner. We have to look after our own defence needs."

A rare divergence on global stock markets has been fueled by the change in sentiment.

The S&P 500 index has fallen 1.8% in the past year. However, European shares have risen almost 9% to a new record high. Tech stocks in Hong Kong are up nearly 30%.

The euro has soared above $1.07 for the first time in four months, and many banks have backed away from their calls to drop it to parity with the dollar.

According to weekly data released by the Commodity Futures Trading Commission, investors have cut their bullish dollar bets in half since the inauguration of U.S. president Donald Trump in January.

Dario Perkins is the managing director of global macro for TS Lombard.

The aggressiveness and threat of tariffs by Trump has forced other countries to spend even more.

In his first 44 working days, Trump has completely rewritten the playbook of foreign relations that had been in place since 1945. He's also launched a trade war with his largest trading partners, and forced European leaders into a radical rethinking of how they fund security.

The U.S. economic growth is slowing down due to tariffs and trade uncertainties. Companies that are more susceptible to a slower rate of growth are beginning to show cracks.

In the past month, an index of U.S. bank stocks has dropped 8% while its European counterpart has increased 15%.

Investors are diversifying away from the U.S. markets by pouring money into Europe.

Spending Big

The dollar looks less attractive as Europe and China are poised to spend large amounts.

"We were long the dollar against euro, and we closed this position more than a week ago. Mark Dowding is chief investment officer of RBC's BlueBay Fixed Income team. The behaviour of Trump has reduced the appeal for U.S. investments in general.

The government has taken several steps to encourage spending at home after investors sold Chinese assets in the past year. As the economy slowed, and wealthy consumers closed their wallets, it took several measures to encourage domestic consumption. Many still saw China as an uninvestable country in the absence a jumbo-stimulus plan, as tensions from a real estate bubble burst that affected both companies and homeowners remained.

Lipper data shows that the almost uninterrupted outflows of China-focused funds following Trump's victory in November have reversed to some $3 billion in early February.

Megacap tech stocks are a major draw for the U.S. Stock Market. Nvidia has been a leader in the AI investment revolution, and is one of the most valuable companies on the planet.

It was not until late January that a low-cost Chinese AI model, previously unknown, made a serious impact on the AI arms race.

DeepSeek's appearance has not only challenged assumptions about AI costs and efficiency, but also revealed how far behind Western companies China was.

Hong Kong tech stocks are up 24% since January 27. A basket of U.S. megacap tech stocks is down 12%.

Yang Tingwu is vice general manager at asset manager Tongheng Investment. He said that China's stock markets are already immune to increased U.S. Tariffs, as the growing strength of China is supporting domestic assets.

Yang stated that "China's technological clout has expanded if you look at TikTok or Xiaohongshu, as well as DeepSeek."

In response to the imminent sale of a rival social media platform, American users are rapidly migrating to Xiaohongshu. This Chinese platform is known in English as RedNote.

TikTok's U.S. operations.

For some, the dollar's appeal will last over time due to a resilient U.S. economic climate and higher interest rates.

Nate Thooft is the CIO of Multi-Asset Solutions & Global Equities for Manulife Investment Management. He said: "I think there's a change in play. We view it as a tactic versus a major secular shift." Recently, he upgraded his maximum underweight position on European stocks to neutral.

(source: Reuters)