Investor Distrust sends Capital Flooding Europe, bypassing Trump's America
Increased Apprehension Towards Trump Leads to Financial Shifts from U.S. to Europe - US investors increasingly moving their assets to European countries due to growing distrust in President Trump's economic policies.
Hey there! Let's talk about the flip-flop that happened in the first half of 2025 when European stock markets kicked US markets' butts. And it's all thanks to none other than our old pal, Donald Trump. I kid, but you get the picture. International investors have been siphoning billions out of the US markets and pouring them into Europe, causing a major shift in fortunes. Why, you ask? Well, it's all about those tariff threats and all-over-the-place policy changes from the White House.
European powerhouses like Germany, Spain, and Italy are grinning ear-to-ear. Their stock exchanges have raked in some hefty double-digit gains, with Germany's DAX soaring around 16 percent since the start of the year, despite a few hiccups. On the other hand, US stock markets have barely moved an inch, with pathetic gains of less than 2%.
Money's flowing back home
According to Ludovic Subran, Chief Investment Officer at Allianz, the heavyweight with around 2.5 trillion euros in assets under management, there's been a substantial shift in where investors are parking their cash. For years, the big bucks had been flooding into US financial markets, but now they're heading to Europe and even Japan.
Trump's hands-off approach to the economy has resulted in US stocks being expensive compared to their corporate earnings, while European stocks are sitting pretty at relatively cheap prices. "The net position of portfolio investments in the USA was estimated at around 17 trillion dollars by the end of 2024," says Vincenzo Vedda, Global Chief Investment Officer at DWS, Deutsche Bank's asset-management division, which also boasts over one trillion euros in assets under management.
Rediscovering the old continent
"This has changed," says Vedda. "From a strong overweight of the USA by fund managers at the end of 2024, it has become a significant underweight." Vedda points to two factors responsible for the shift: First, the rediscovery of Europe and its stocks, with interest coming from both Asia and the USA. Not to mention Europeans themselves rediscovering their 'home market'. Second, many investors felt the urge to "reduce US exposure and diversify more strongly." Furthermore, concern about the depreciation of the dollar and political developments in the USA played their part.
European stash spot worth it
BayernLB chief economist Jürgen Michels brings in some numbers to back up the claim. In the first quarter of 2025, 26 billion euros flowed into European equity funds, after there had been net outflows for twelve consecutive quarters - that's three years of the red light! In April and May, another 22 billion euros flowed in.
Eroding Trust in the USA
Michels attributes the significant movement of investor funds from the USA to Europe to the uncertainty created by US policy and the diminishing trust in the US. In April, after Trump announced his "Liberation Day" and the largest US tariff increases since the 1930s, there was a colossal net outflow of funds from all US funds.
More EU optimism
The increased interest in European stocks is also bolstered by growing optimism in Europe, according to Michels. The fiscal package introduced by Germany's new government has contributed to the positive sentiment. "Investors seem no longer willing to pay the historically exceptional premium of US stocks over European stocks," says Michels.
Italy - Solid as ever?
Not only the stock markets are peculiar, but Italian bonds are also offering rates that are lower than those in the USA, believe it or not. Italy currently pays significantly lower interest rates compared to the USA.
This twist in the tale is nothing new, as the experts explained. "Nevertheless, the recent increase in US interest rates compared to Italy suggests that markets are increasingly concerned about US government debt," says Allianz's Subran.
Drowning in Debt
In the past decade, the US debt has almost doubled. From $18.1 trillion in the autumn of 2015 to $35.4 trillion in the autumn of 2024, according to data from the US Department of the Treasury. Trump racked up the debt despite a powerful US economy in his first term, with Joe Biden adding to the total during the Corona pandemic.
"The US dollar will remain the dominant currency in the medium term, and US investments will continue to be the bedrock of the global financial world, with no serious competition," says the Chief Investment Officer of Allianz.
Trump - The Taco President
Since Trump has only implemented his original tariff threats in a watered-down form, the fear of escalating trade wars between the USA and the rest of the world has eased somewhat in the financial markets. The nickname "Taco" given to Trump by the financial world is well-deserved, as he has a tendency to back off from aggressive threats: "Trump always chickens out."
However, this trend could continue to some extent in the second half of the year, according to the experts' estimates. "We believe that the tendency of international investors to diversify their portfolios away from the US will persist," concludes DWS's Vedda.
- Donald Trump
- USA
- Europe
- Capital flight
- Italy
- Munich
- Frankfurt Stock Exchange
- Germany
- Spain
- Japan
- Allianz SE
- DWS
- Deutsche Bank
Insights:
Information sourced from the enrichment data indicates that the significant capital flight from US to European markets stems from a loss of trust in the US political and economic environment. Investors, particularly European pension funds and insurance companies, are reducing their exposure to US assets and reallocating their capital towards Europe and Asia due to political and fiscal instability concerns and policy uncertainty, causing a weakening US dollar and boosting European stock performance.
- The shift in investor behavior towards European markets, as opposed to the US, can be linked to the eroding trust in the American political and economic environment, which has led to a reallocation of capital from US assets to European and Asian markets.
- The frequent changes and uncertainty in the White House's policy have made US stocks appear expensive compared to their corporate earnings, while European stocks are relatively cheap, attracting significant investments from various sources, including Asia and the US itself.
