MUNICH (dpa-AFX) - Europe's stock markets outperformed the US markets in the first half of 2025 for the first time in many years - thanks to US President Donald Trump. According to investment managers and economists, international investors have withdrawn billions from the US markets and shifted them to Europe. The main reasons for the capital flight from the United States are Trump's tariff threats and erratic policy changes. This means that international money flows have changed direction, at least for the time being. In previous years, huge sums flowed into the US.
The main winners in Europe are the stock markets in Germany, Spain, and Italy, each with double-digit gains. Despite recent losses, the DAX has gained around 17 percent since the beginning of the year. The US stock markets, on the other hand, have seen only modest gains or have remained flat so far.
Investor money is flowing back to Europe
"There are numerous indications of a significant movement of investor money from the US towards Europe, but also to other regions such as Japan," says Ludovic Subran, Chief Investment Officer at Allianz and primarily responsible for financial investments. With nearly €2.5 trillion in invested capital, the Munich-based DAX-listed company is one of the international giants in its field.
For years, large amounts of money from all over the world had been flowing into the US financial markets. As a result, stocks in the US are expensive relative to corporate earnings, but comparatively cheap in Europe. "The cumulative net position in portfolio investments in the US is estimated at around $17 trillion at the end of 2024," says Vincenzo Vedda, Global Chief Investment Officer at DWS, Deutsche Bank's asset manager. With over $1 trillion in assets under management, DWS is also a heavyweight.
The "rediscovery" of Europe
"This has now changed," says Vedda. "What was a strong overweighting of the US by fund managers at the end of 2024 has turned into a significant underweighting." Vedda cites two trends: "First, the rediscovery of Europe and its stocks. Interest came from both Asia and the US, but Europeans themselves have also rediscovered their 'home market.'"
Second, according to Vedda, many investors felt the urge to "reduce their US exposure and diversify more." In addition to political developments in the US and the fact that many investors had previously built up a very large overweight position in the US, concerns about a further weakening of the dollar were also a key driver.
International balance of payments figures are not yet available, but inflows and outflows for ETF equity funds have been published. BayernLB chief economist Jürgen Michels refers to data from US financial information service provider Morningstar. According to this, 26 billion euros flowed into European equity funds in the first quarter of 2025, following twelve quarters – i.e. three years – of net outflows. In April and May, a further 22 billion euros flowed into European funds.
Dwindling confidence in the US ...
"The uncertainty caused by US politics and dwindling confidence in the US are likely to have played a major role in this development," says the economist. There was a strikingly strong net outflow of funds from all US funds in April – after Trump announced his "Liberation Day" and the biggest US tariff increases since the days of the global economic crisis in 1930.
... and slightly more optimism in Europe
"However, the increased interest in European equities is also driven by greater confidence about the outlook for Europe," says Michels. According to the BayernLB chief economist, the new German government's fiscal package has contributed to this. "Against this backdrop, investors no longer seem willing to accept the historically exceptionally high valuation premium of US stocks relative to European stocks."
Italy more solid than the US?
It is not only the stock markets that are striking: the US is currently paying significantly higher interest rates of around 4.4 percent on ten-year government bonds than Italy, at 3.5 percent. Traditionally, Italian bonds tend to have higher interest rates – the risk premium for the country's high level of debt.
This has happened before, according to the experts surveyed. "Nevertheless, the recent rise in US interest rates compared to Italy indicates that markets are increasingly concerned about US government debt. At the same time, the fiscal policy situation in Italy has improved significantly," says Allianz Chief Investment Officer Subran.
US government debt is rising rapidly
This is because the United States' liabilities have nearly doubled in the past ten years: from $18.1 trillion in the fall of 2015 to $35.4 trillion in the fall of 2024, according to data from the US Department of the Treasury. Trump drove up debt during his first term despite the US economy still performing well at the time, and his successor Joe Biden fought the coronavirus pandemic with loans.
"Nevertheless, the US dollar will remain the dominant currency in the medium term and US assets will remain the backbone of the global financial system, not least because of a lack of alternatives," says the Chief Investment Officer of Allianz.
President Taco
As Trump has so far only implemented his original tariff threats in a watered-down form, the financial markets' fears of escalating trade wars between the US and the rest of the world have eased somewhat. The US president's tendency to quickly back down after making bellicose threats has earned him the derisive nickname "Taco" in the financial world: "Trump always chickens out."
However, the trend continued to a lesser extent in the second half of the year, according to the consensus view. "We believe that the urge among international investors to make their portfolios slightly less US-heavy is likely to continue," says DWS Chief Investment Officer Vedda./cho/DP/zb
