Wall Street "reduces holdings in America": Over $50 billion flows into international ETFs in January, shifting to China, Japan, and Europe.

After years of heavily investing in major U.S. tech stocks, Wall Street investors are accelerating the shift of capital to international markets, driven by high U.S. stock valuations, a weakening dollar, and new opportunities emerging overseas. Investors are betting that the U.S. market's leading edge will narrow. Capital flow data shows this trend is picking up speed. According to a Wall Street Journal report on Monday, Morningstar Direct data shows that in January, investors made net inflows of $51.6 billion into international equity ETFs, with monthly inflows surging since the end of 2024. Several global indices have outperformed major U.S. benchmark indices this year, including the STOXX Europe 600 Index, the KOSPI Index in Korea, and the MSCI Emerging Markets Index. Last year, the MSCI World Ex-U.S. Index surged 29% in U.S. dollar terms, marking its best performance in over a decade, well above the S&P 500’s 16% rise. This round of capital outflows differs from last spring’s “de-risk U.S.” trade. Most asset managers still believe the U.S. will lead global stock market gains, though the margin of leadership may not be as great as in recent years. Valuations and Dollar Drive Capital Outflow High valuations and a depreciating dollar have become the core factors driving capital overseas. The dollar has fallen about 10% from its 2022 high, boosting the earnings value of foreign companies relative to U.S. ones and enhancing returns for overseas stocks. Keith Lerner, Chief Investment Officer at Truist Advisory Services, said: "We are now in a global bull market, and it's no longer just a U.S. story." Alex Guiliano, Chief Investment Officer at Resonate Wealth Partners in New Jersey, increased his allocation to European and Japanese stocks this year, partly attracted by their lower valuations. "It feels like we've hit a turning point," he said. "International markets seem to have many ways to win." Michael Rosen, Chief Investment Officer at Angeles Investments, concentrated his portfolio on the largest U.S. tech stocks for most of the past decade, but in the past year has shifted funds to global small-cap and value stocks, with a focus on Europe and China. "For us, this is a very big change," Rosen said. Overseas Market Catalysts Emerge Investor optimism is being bolstered by a range of overseas developments, from Japan's fiscal stimulus to surging military spending in Europe. On Monday, Japan's Nikkei 225 Index hit a new high after Prime Minister Sanae Takaichi won a snap parliamentary election. Some traders are simply looking for better deals than the high-priced domestic stocks. Others hope to diversify from the major domestic indices, which are dominated by a handful of tech giants. Don Calcagni, Chief Investment Officer at Mercer Advisors, said that although he still sees the U.S. as "exceptional," there are concerns about the future of the U.S. market, including swelling national debt and the political and economic volatility brought by President Trump. "There is strong evidence—not necessarily a reduction of U.S. holdings—but rather a rebalancing of allocations outside the U.S., taking a more balanced approach," he said. Differences From The "De-risk U.S." Trade Asset managers are quick to point out that the recent wave of foreign stock purchases is not a second wave of last spring’s "de-risk U.S." trade. Back then, global investors sold off U.S. stocks, treasuries, and other dollar-denominated assets, with the dollar tumbling during tariff turmoil. Citing last year's double-digit annual gains in the S&P 500, Calcagni said: "If the de-risk U.S. trade could give me a 16% return, I'd do it all the time. We still think the U.S. is exceptional." Despite recent declines in tech stocks impacting the market, U.S. stocks hit new highs last week, with the Dow Jones Industrial Average breaking above the 50,000 mark for the first time. Investors have also been rotating out of domestic market leaders for some time. After three consecutive years of impressive returns for U.S. stocks—driven mainly by artificial intelligence investment fervor—traders are looking elsewhere for the next wave of gains. Foreign stocks are not the only beneficiaries: Small-cap and blue-chip stocks have also outperformed main benchmark indices in recent weeks. Calcagni added that investor focus on the U.S. market is broadening. "Many of our clients now ask us why we don't hold more foreign equities," he said. "Investors may have found a new faith in international diversification." Risk Warning and Disclaimer The market carries risk, and investments should be made cautiously. This article does not constitute personal investment advice, nor does it take into account the individual investment goals, financial situation, or needs of any specific user. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their individual circumstances. Investing based on this article is at your own risk.