Greenland dispute signals "US-Europe decoupling"? Wall Street faces "European divestment"

As the Trump administration’s protectionist rhetoric continues to escalate, Wall Street is facing a brand new structural risk: a potential “buyer strike” initiated by European investors. As the most important source of overseas funding for the U.S. stock market, European investors hold about $10.4 trillion worth of U.S. stocks. The reversal of their sentiment is now threatening the cornerstone of the long bull market in U.S. equities.

According to a WallstreetCN article, with Trump making tough threats to allies over the Greenland issue, the long-standing bond between the U.S. and Europe, built on shared values, is facing rupture. Wall Street Journal reporter Greg Ip analyzed that this is effectively a “decoupling” between the U.S. and Europe.

Although Trump’s verbal attacks on Europe have eased somewhat recently, market anxiety hasn’t dissipated. Vincent Mortier, Chief Investment Officer at Amundi SA, Europe’s largest asset manager, revealed that the trend for clients to diversify investments and reduce U.S. exposure began in April 2025 and accelerated this week. This shift in capital flows reflects deep market concerns about the U.S. government’s hawkish attitude and the weaponization of dollar assets.

The market impact of this trend should not be underestimated. According to Scotiabank strategists, European investors hold 49% of all foreign-owned U.S. stocks—a proportion large enough to move the market. Any sustained withdrawal could put long-term pressure on U.S. stocks, bonds, and the dollar exchange rate. In fact, due to Trump’s tariff threats, the S&P 500 Index fell 2.1% on Tuesday, showing the market’s high sensitivity to policy risks.

U.S. Commerce Secretary Howard Lutnick reiterated in Davos that the current administration sees globalization as a “failed policy”—a stance sharply at odds with Wall Street’s reality. For years, it was foreign investors, especially European buyers, whose insatiable appetite for U.S. stocks pushed benchmark indices to repeated highs. Now, as the risk of “U.S.-Europe decoupling” spreads from geopolitics into the financial sector, investors are being forced to reevaluate their asset allocation logic.

Reversal of Capital Flows and Lagging Performance of U.S. Stocks

Although Europe is unlikely to take coordinated official action to dump U.S. assets, fund managers from London, Berlin to Madrid are facing a surge in inquiries from clients about reducing holdings. Scotiabank portfolio and quantitative strategist Hugo Ste-Marie pointed out that if this diversification trend accelerates, U.S. financial assets will face heavy pressure over time.

Political risks aren’t the only driver of this shift; investment returns are also a key consideration. For years, U.S. stocks have outperformed their developed-market peers, but this pattern has reversed since Trump’s inauguration. As the U.S. dollar weakened and European governments ramped up spending, the Stoxx 600 Index jumped 32% last year on a U.S. dollar basis, South Korea’s Kospi soared 80%, Canada’s S&P/TSX Composite rose 28%, while the U.S. benchmark index increased only 16% in the same period.

Michael O’Rourke, Chief Market Strategist at JonesTrading Institutional Services LLC, said that since European investors already have large exposure to U.S. stocks and more opportunities exist elsewhere, reducing their allocation to U.S. equities has become a sensible tactical choice.

Risk Aversion Drives Asset Allocation

For many institutional investors, the Trump administration’s “weaponization” of financial interdependence has made diversification a top priority. Raphael Thuin, Head of Capital Markets Strategy at Tikehau Capital SCA, which manages over €50 billion, noted that given the weak dollar and geopolitical risks, diversified allocation has become the primary concern for most institutional investors. He expects that as investors reposition for a new cycle, capital flows to European assets may accelerate this year.

This sentiment is echoed at Swiss private bank Julius Baer & Co. The bank’s Head of Equity Strategy, Mathieu Racheter, warned that the current environment is not suitable for being fully exposed to U.S. stocks or assets, especially dollar assets. Although current ETF flow data does not yet show dramatic changes in foreign investor demand, Edmond de Rothschild Asset Management’s Chief Investment Officer, Benjamin Melman, believes that in the long run, it’s possible for the weight of U.S. assets to be reduced.

The Precedent of Greenland and Canada

While a comprehensive “European divestment” hasn’t occurred yet, there are already signs of it, especially in regions directly impacted by geopolitical shocks. Greenland’s SISA Pension, which manages about 7 billion Danish Kroner in assets, has its board discussing divestment from U.S. assets, which currently account for about 50% of the fund’s exposure. Meanwhile, Danish pension funds such as AkademikerPension are exiting U.S. Treasury holdings.

Canada’s experience offers a precedent for Europe’s current situation. Last year, after Trump threatened to use “economic power” to make Canada the 51st state, Canada asked pension fund managers to reduce holdings of U.S. stocks. Canadian Prime Minister Mark Carney said in Davos that Trump’s weaponization of nations’ interdependence has forced countries that once relied on financial integration with the U.S. to rethink their position.

Trust Crisis in the International Order

At the heart of this dispute is investors’ loss of faith in a rules-based international order. Lars Christensen, CEO of financial consultancy Paice, said the problem stems from America apparently abandoning the international rules it once supported, which means investors can no longer trust the dollar or U.S. investments as they did before.

He wrote on social media platform X that this isn’t about Europe confronting the U.S., but about investment prudence—how to reduce risk. For Wall Street, even if the threat of a European buyer strike is still in its early stages, against the backdrop of historically high U.S. stock valuations, this undoubtedly adds a significant downside risk to the market.

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