After years of massive inflows to Wall Street, investors are beginning to reduce their exposure to US equities. Europe and China, long neglected, are regaining their appeal. Is this simply a tactical rebalancing or the beginnings of a more structural shift?
After nearly three years in which US equities captured most of the inflows, the momentum seems to have reversed. Over the last five months, from December 2024 to April 2025, non-US ETFs and funds raised $2.5bn.
Monthly flows into non-US funds. Source: Morningstar Direct, Financial Times
All this comes at a time when the period of US exceptionalism seems to be coming to an end and investors are more concerned about the impact of tariffs on US growth.
Taking a step back, the US has attracted most investor flows over the past 15 years, accounting for almost three-quarters of the MSCI World Index at the end of 2024.
Everyone was therefore somewhat overexposed to the US market. And we are probably in the midst of a major rebalancing, with China and Europe, which have been neglected in recent years, regaining investor interest.
China had become uninvestable for many managers, given the economic slowdown and the stranglehold of the communist regime, while in Europe, the lack of growth was not attracting flows either. Now, it is the stability of the Old Continent that is being highlighted, along with hopes for fiscal support through German stimulus and defense spending.
This flow dynamic is reflected in index performances since the beginning of the year. The S&P 500 is down 1% in 2025. Over the same period, the Stoxx 600 gained 10.5%, while the Hang Seng rose 18%.
Finally, surveys also point in this direction. In Bank of America’s closely watched Fund Manager Survey, a monthly survey of fund managers, we see that the “most crowded” trade is long gold. This ranking has been dominated for almost two years by the Magnificent Seven.
Source: Fund Manager Survey, Bank of America
This geographical rotation in equities is therefore probably a rebalancing between a region that is over-represented in allocations (the United States) and China and Europe, which have been neglected in recent years.
At this stage there is no indication that this is a fundamental trend and that Europe will continue to outperform the US. In its comments this morning, Bank of America believes that much of the rally is over: “The recent rebound leaves European equities anticipating stronger global growth, but we expect global growth to slow in the coming months.”
