Foreign capital is hypocritical! "Criticizing by day, buying crazily by night" in America—how much longer can this 'hot money' boom last?

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Despite the continued decline in global favorability toward the United States, foreign investors are pouring into American financial markets at record levels. This contradictory phenomenon of "criticizing the U.S. by day, frenziedly buying by night" is pushing the U.S. market into unprecedented dependency—the current account deficit is now almost entirely filled by speculative foreign capital.

On Monday, Ruchir Sharma, a columnist for the UK’s Financial Times, stated in his latest article that last year, foreign investors injected about $1.6 trillion into U.S. financial assets, including nearly $700 billion into stocks, both setting historic highs. From Singapore to Seoul, staying up late to trade U.S. stocks after hours has become the norm; the proportion of U.S. stocks held by foreign institutions has risen to a record 15%, a 50% increase over a decade.

But this boom driven by "hot money" is facing a test. Among last year's inflows to the U.S., direct investment in factories and businesses, which can't be swiftly withdrawn, was notably weak, while portfolio investments in stocks and bonds, which can be reversed instantly, dominated. Meanwhile, markets outside the U.S. outperformed Wall Street last year, a trend that is strengthening with accelerating global economic growth.

Should global investors reduce their purchases of U.S. assets, the impact could cause violent shocks in U.S. markets. America's reliance on speculative foreign capital has reached unprecedented levels, fueled solely by the "moods of strangers."

The Contradictions Behind Record Inflows

Foreign investors’ enthusiasm for U.S. assets stands in stark contrast to their perceptions of America. On recent visits to Asia, Europe, and the Middle East, Sharma found complaints about Trump-era America rising sharply, from tariff policies to attempts on Greenland, and an obvious disregard for the old global order. Polls show global favorability toward the U.S. is plummeting.

Yet data shows that even as opinions worsen, funds continue to rush in at unprecedented speed. With the exception of a brief ‘sell America’ wave last April, foreign investors have been consistent buyers every month in 2025, aggressively ‘buying the dips’ like U.S. retail investors. Foreign purchases of U.S. corporate bonds have also surged.

Foreign institutions currently hold nearly 15% of U.S. stocks, a record high, up 50% from a decade ago. The total value of U.S. assets held by foreign investors approaches $70 trillion, double what it was ten years ago. The few exceptions are central banks, which have shifted funds from dollars to gold. The only sign of new caution in 2025 is that global investors have hedged their unprecedented huge dollar exposure more than the previous year.

Inertia and Tech Worship Driving Demand

Investors are buying heavily into a country they claim to despise more and more, partly due to inertia. Since the 2008 global financial crisis, the U.S. market has consistently outperformed other regions, and many investors are still chasing past performance. They have become used to believing that, given the U.S. market's massive scale and liquidity, there is ‘no alternative’ for investment.

Global awe for the U.S.'s technological leadership endures. While Europeans have long been the most enthusiastic buyers of U.S. tech stocks, last year’s largest single source of foreign funds into the U.S. stock market was South Korea, where a mania for assets related to the U.S. or artificial intelligence is particularly strong.

Yet America’s fervor for AI stocks is raising existential issues, as it’s still unclear which companies will win the AI arms race, or even whether they will be American. China has shown competitive capability; some of its AI models offer similar performance at lower training costs. Should AI mania fade, American assets might be hit hardest. More than half of last year’s U.S. economic growth can be attributed to tens of billions spent by American companies on AI infrastructure, and the capital wave flowing into U.S. financial assets.

The Fragility of "Hot Money" Dependence

Market trends don’t last forever, and the habit of ‘criticizing by day, buying all night’ is likely no exception. To cope with U.S. market dominance and unpredictability, other governments are seeking risk diversification. They are signing bilateral trade agreements, easing regulations, and increasing investment in defense and domestic technology sectors.

Despite last year’s huge capital inflows to America, markets in the rest of the world far outperformed the U.S. As economic growth outside America accelerates, this trend is strengthening. It is expected that this year and next, economic growth in the rest of the world will reach 1.5 times that of the U.S., and this gap is widening compared with recent years. By 2027, average earnings growth for businesses in emerging markets is forecast to be twice that of America, with other developed markets 50% faster.

America’s spending habits depend on the ‘moods of strangers’ more than ever. Last year, foreign portfolio inflows were sufficient to fund the entire U.S. current account deficit—and then some. The last time this happened was the mid-2000s, when the U.S. markets weren’t as large or the deficits as high. America’s reliance on speculative foreign capital is unprecedented.

Most of last year’s inflows to America arrived as "hot money". Foreign direct investment in factories and businesses, which cannot be quickly withdrawn, has lagged far behind portfolio investments in stocks and bonds, which can reverse instantly. If global purchases of U.S. assets are cut, the impact could cause severe shocks to U.S. markets. The sustainability of this influx, built on contradictory sentiment, is under increasing scrutiny.

Risk Warning and DisclaimerMarkets entail risks; investment requires caution. This article does not constitute personal investment advice and does not address the unique investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, perspectives, or conclusions herein suit their particular circumstances. Investments based on this are at one's own risk. ```