“Suddenly everything I ever wanted has passed me by – I’m crying in the rain”: The immortal lines to Dionne Warwick’s 1980s iconic hit could end up being a bitter corollary to Donald Trump's United States presidency.
His wrecking ball economic reforms continue to deliver polar opposite outcomes to the policy objectives he so desperately seeks.
The net effect is that big institutional investors are shifting away from U.S. markets with the country’s escalating debt fuelling fears over the dominance of American assets in global portfolios.
A poll of fund managers published by Bank of America (BoA) last month showed the biggest underweight in the U.S. dollar in nearly two decades.
“The U.S. has been the best place in the world to invest for a century, but I’m starting to hear investors question whether U.S. exceptionalism is a little less exceptional, and think about whether to position their portfolios accordingly,” Howard Marks, co-founder of US$203 billion alternatives manager Oaktree Capital Management recently told the market.
US dollar decline
The most recent lightning rod to both domestic and global objection to ‘Trumpism’ is the deteriorating state of the greenback with the U.S. dollar Index down 10.8% within the first six months of 2025.
This marks the worst start to a year experienced by the world’s reserve currency since the oil crisis in 1973.
While bilateral deals between China and Russia, India, the UAE and others are eroding U.S. dollar dominance, a growing number of BRICS bloc economies as also actively reducing their reliance on the U.S. dollar.
What also appears to be sending the U.S. dollar lower is a material loss of investor confidence in the White House’s stewardship of the economy.
Nowhere is that growing sovereign risk towards the U.S. more evident than within the institutional bond investors that are now questioning whether the U.S. remains a safe-haven for their foreign cash reserves.
A recent downgrading of the U.S. debt rating to Aa1 from Aaa by Moody’s has also raised doubts over the US$7 trillion worth of debt that needs to be cleared within the next few months.
The U.S. will not want to see a repeat of the mass sell-off by investors of U.S. government bonds following Trump’s ‘liberation day’ tariff announcements back in April.
The significance of the bond market - the world’s biggest securities exchange, worth almost $130 trillion - to the U.S. can’t be understated, given that it accounts for around 40% of debt worldwide.
Rotation away from US dollar-denominated assets
As institutional investors review the extent of their holdings in the U.S., Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund, recently told investors it would reduce its exposure to the country - currently accounting for 40% of its portfolio - and plans to increase investment in the UK, France and Germany.
Bonds aside, mounting uncertainty about the U.S. as a safe-haven economy has also resulted in growing investor appetite for non-U.S. dollar-denominated assets.
While fund managers' in-flows within the last five months suggest Australia is one of many jurisdictions benefiting from the flow of money out of the U.S., we’re also witnessing a rotation from the U.S. into European assets.
Drawn by an infrastructure- and defence-led spending push that offers stability at a time when Trump's erratic tariff policies are making the U.S. market a less safe bet, investors and companies are increasingly turning to Europe.
Given that Luxembourg-based hydrogen firm H2Apex (H2A.DE) can no longer rely on U.S. suppliers for its more than 200 million euro ($235 million) project in Lubmin, Germany, CEO Peter Roessner is witnessing growing interest in European projects.
Due to absolute uncertainty and planning insecurity in the U.S. he recently told the market that investors in the hydrogen sector are now focusing more on the European market.
While the framework conditions in Europe are not ideal, Roessner said the shift [to Europe] has been fuelled by Trump's tendency to make sweeping tariff threats and announcements that are then often delayed or changed.
Investment diaspora ahead of the 9 July deadline
Echoing a similar sentiment, Christoph Witzke CIO at Deka, one of Germany's largest investment funds, note that political intervention and an attempt to expand power create uncertainty that some kind of [U.S.] intervention could come at any time.
With a trade deal now only a week out from Trump’s 9 July deadline, it's evident that a shift in investor money is already in play.
Data from LSEG's Lipper Funds show that more than US$100 billion has flowed into European equity funds so far this year - up threefold from the same period last year - while outflows from the U.S. more than doubled to nearly US$87 billion.
Investors pulled cash out of U.S. equity funds in seven of the last twelve months, while their European counterparts showed consistent inflows over the same period.
"All that is an indication that at least market forces, investors, those who move real money around, actually see value and have confidence in Europe," ECB President Christine Lagarde said earlier this month.
Germany is big winner
According to the Bundesbank's latest data, Germany - the European bloc's largest economy - more than doubled its foreign direct investment flows to 46 billion euros in the first four months of 2025 - the highest level since 2022.
The German banks' data shows that the country’s companies pulled money out of the U.S. in three of the first four months of the year, with their balance of foreign direct investments in April at negative 2.38 billion euros.
Negative balances emerge when companies divest more than they invest in a foreign country or decide against extending credit lines to their local counterparts.
Investors’ wariness over U.S. exposure has also seen markets in Europe go on a one-trillion euro spending spree, on German defence and infrastructure, which is expected to boost the economy’s growth.
Exit from overbought US equities
However, it’s not just Europeans investing in their own trading bloc, with New York-based investment firm Neuberger Berman Group making 65% of its private equity co-investments in Europe this year, up from 20-30% in recent years.
Interestingly, while June saw the S&P 500 experience its best quarter since 2023, Bank of America (BoA) clients withdrew money from U.S. equities at the fastest pace in 10 weeks.
In a recent client note, the bank revealed that all major client groups – institutions, retail traders and hedge funds – collectively pulled US$1.3 billion ($2 billion) from U.S. stocks last week.
What appears to be prompting the risk-off mood towards U.S. equities is growing speculation that the rally that saw the S&P 500 Index recover from the tariff-related trough in April will be short-lived.
The benchmark is hovering near its most overbought level since July 2024.
According to BoA data, client groups sold stocks in eight sectors, with industrials and real estate leading the selloff having witnessed overflows in each of the last four weeks.
Meanwhile, the BoA notes that utilities and clean-tech stocks – which have experienced six weeks of selling - could see headwinds from Donald Trump’s tax legislation recently passed in the Senate.
