Europe Challenges Wall Street: A Shift in Investment That’s Here to Stay

The Trumpian slogan “Make America Great Again” does not seem likely to be fulfilled regarding the U.S. Stock Market, which may lose the prominence it has gained in recent years as the global destination for savings and its undisputed leadership in profits. Europe, and also Asia, expect to receive the cash flow exiting Wall Street, affected by the falling dollar and a long-standing overvaluation of its stocks. This exodus of investments, accelerated by Donald Trump’s economic policies, is evident in this first half of the year, and experts warn that it will not be a one-time movement but a structural change in portfolios.

A recent Bank of America survey anticipates that global stocks will outperform U.S. stocks in terms of returns over the next five years. Around 54% of asset managers believe that international stocks will be the most profitable asset class, while 23% favored U.S. stocks, according to the survey. Only 13% stated that gold would provide the highest return, and 5% backed bonds. If fund managers are correct in their prediction, it would reverse what has been the most profitable strategy for years. U.S. stocks have outperformed international ones in 13 of the last 15 years, according to data compiled by Bloomberg.

Throughout 2025, this improvement in returns outside the U.S. is palpable. The U.S. S&P 500 has seen a revaluation of 4%, in line with the Nasdaq Composite. These returns contrast with the 8% of the EuroStoxx 50, 19.7% of the German stock market, and 20% of Spain’s Ibex 35. And looking towards Asia, with a 21% annual rise in Hong Kong’s Hang Seng index.

The perspective of the 190 surveyed managers is quite disappointing regarding investment in the United States: 31% of investors reported being underweight in the U.S. dollar, the most negative reading in 20 years. And 36% stated they are underweight in U.S. equities.

The conclusions of this survey are already reflected in the data. The manager Amundi, the largest in Europe, points out that the European stock market has attracted 40 billion euros by mid-month compared to the 10 billion euros that have flowed into U.S. markets. A significant portion of this money is due to the repatriation of funds by European investors, who have approximately 50% of their portfolios invested in the country presided over by Trump. They also indicate that this trend of disinvestment and return to Europe will continue throughout the year, following the high volumes invested in recent years in the United States and the strong performance of the European stock market in the first half. Despite the European rally, the argument for more attractive pricing in Europe also weighs heavily on the decision.

Regarding investments in both active funds and ETFs, data from Morningstar Direct point in the same direction. Active management funds achieved net inflows of 38.26 billion euros in the year up to April 30, compared to 13.168 billion euros for passive management funds. This means that the assets of European funds investing in the European stock market reached 1.2 trillion euros in total, compared to 1.17 trillion euros for those funds registered in Europe but focused on U.S. equities.

The size of the European and U.S. stock markets must also be considered. The markets of the Old Continent currently have a capitalization hovering around 15 trillion dollars, while the U.S. market—also home to companies from around the world—approaches 50 trillion dollars. A data point reflecting the phenomenon of market concentration is that the so-called “Seven Magnificents” (Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, and Tesla) still represent a third of the U.S. market capitalization.

The management firm M&G suggests that rebalancing the portfolio away from the U.S. in favor of increasing exposure to Europe or Asia may better fit the potential ongoing secular change. “We see opportunities in semiconductors related to AI and in European stocks that will benefit from increased spending on defense and infrastructure. While European markets have performed solidly this year, we believe valuations in many areas remain attractive,” they state. They add, “if volatility related to the trade war continues, one country where we find opportunities is India. More than 70% of the revenue generated by the 200 largest publicly traded companies in India is domestic,” they conclude.

Analysts observe erratic behaviors that had not been seen before. In light of recent hostilities in the Middle East, and unlike previous military crises in the region, neither Treasury bonds nor the U.S. dollar have strengthened. It is also unusual for both the dollar and U.S. equities (S&P 500) to fall simultaneously, as has happened this year. “We could argue that, after investing trillions of dollars in U.S. assets over the past five years, international investors are beginning to rebalance their portfolios. U.S. equities have shown volatility, and the demand for Treasury bonds has been weak, with at least part of those flows directed toward gold, which has continued to strengthen,” explains Peter Smith, Chief Investment Officer at Federated Hermes. “In this context, we believe investors would do well to continue considering opportunities outside the United States. Europe, for example, has more levers for monetary and fiscal stimulus to generate economic growth. This, combined with more attractive valuations, improved earnings expectations, and a weaker dollar, indicates a possible break from the past. In our opinion, international equities look more appealing now than at any other time in the past 10 years,” concludes the expert.

Finally, Niall Gallagher, Chris Legg, and Chris Sellers, equity managers at Jupiter AM, see possibilities for a shift in the economic order that could benefit European equities. “Although the U.S. has been the dominant market in global equities for the past few years, we believe structural changes in trade, capital allocation, and government policies contribute to a shift towards Europe that has been long overdue.” The European momentum towards energy transition, and especially the determination to spend more on defense and infrastructure—a particularly ambitious bet in Germany’s case—are for analysts differential factors in favor of the European stock market in the coming years. According to Bank of America, there are a handful of German companies that will be clear winners from the infrastructure investment plan in Germany, such as Siemens, Siemens Energy, Daimler Truck, Nordex, Klon, and Jungheinrich.

Jupiter AM managers explain, “We like several sectors in the region, such as semiconductor stocks and semiconductor equipment manufacturers” as they state, “these stocks are exposed to AI, cloud computing, electric vehicles, and other growth areas and are cheap from a historical perspective compared to the Seven Magnificents.” “We also have a positive view on a selection of European banks and a set of specific companies that we find interesting in construction and building materials,” they conclude.

Analysts at the U.S. bank Goldman Sachs in a recent report highlight the qualities of Wall Street as a safe, high-quality, deep and liquid place to allocate capital. However, “U.S. equities have traded at a 50% premium compared to the rest of the world in recent years. So that premium will reduce. The drivers of that premium in the past few years have been growth and rising profits in U.S. markets. But these last two factors are beginning to change with the dollar’s weakness and the truly attractive alternatives now in Europe and Japan,” they explain. They conclude, “China has been a market considered almost impossible to invest in for the past two years. That is beginning to change, both as a result of better growth due to reforms and while we expect some trade and tariff tensions. But we are seeing dollars being allocated to that market with hopes of expanding it.”

For his part, Dan Ivascyn, Chief Investment Officer at Pimco, believes the dollar will remain the reserve currency in the coming years, although he warns that diversification away from the greenback is already occurring. “The dollar and other U.S. risk assets remain relatively expensive, so we think that in the coming years, we could witness a reversal of American exceptionalism, with superior performance in developed and emerging markets.” He also argues that “we are not fleeing U.S. assets, but when we have the flexibility to do so, we seek prudent diversification to reduce portfolio volatility and enhance returns for customers, both in the public and private sector,” he concludes.

The pivot in investment from the United States to other markets, especially Europe and Asia, has already begun. A path that seeks to achieve greater returns for savings and could last for several years. So far, the figures indicate the first transfers, but without underestimating the capacity, size, and innovation of U.S. companies.