Vawn Himmelsbach
5 min read
U.S. stocks had been outperforming the rest of the world for years — until a slew of tariffs and trade policies spooked investors and caused global markets to plunge in March.
Now, some foreign investors are rethinking their exposure to U.S. markets. That’s according to economic expert Rebecca Patterson, who previously served as Bridgewater’s chief investment strategist, on an episode of CNBC’s Fast Money.
After speaking with participants at the World Bank Group and International Monetary Fund meetings in Washington, D.C. last month, she found that foreign investors are losing faith in the U.S. and fear the weaponization of capital markets.
“There are a large number of foreign investors who are worried not only about tariffs, but just about America’s reliability as a partner,” Patterson told CNBC.
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As of last June, foreigners held $31 trillion of U.S. assets, according to the most recent U.S. Treasury data.
Now, foreign investors are looking at the “huge U.S. allocation that has built up over the last several years,” Patterson told CNBC. And they’re thinking maybe they should “have a little bit less, just trim off the tops,” like having a “risk premium on U.S. assets because we have so much uncertainty.”
But the impacts of trimming off the tops could be profound.
“Pretend you’re the chief investment officer of a major overseas pension fund or sovereign wealth fund. I’m going to take 2% off my U.S. stocks, 2% off my U.S. bonds, a 4% shift,” she said. “That’s $1.2 trillion that is going to be leaving the U.S. now.”
However, she said this won’t happen overnight, since investment companies “take months” to make these types of decisions. What will happen instead is “a slow bleed of support out of the U.S. markets,” which she says will go back to home markets or to new opportunities.
But it seems this slow bleed is already happening, with global investors dumping U.S. stocks at a record pace, according to BofA Global Research.
“Respondents to BofA’s monthly survey of fund managers were a net 36% underweight U.S. equities, the most in nearly two years, a number that has plunged by 53 percentage points since February, the biggest such fall on their records,” reported Reuters.
