Investors pull out of U.S. — here's where capital flows

Donald Trump's policies, in particular the introduction of large-scale duties, became a catalyst for capital outflows from the American markets in 2025. The unpredictability of the United States' administration's trade decisions caused the dollar to plummet by 9%, hitting a three-year low, and American stocks to stagnate.

The S&P 500 index grew by only 2% over the year, while the European Stoxx Europe 600 added 9%, according to Reuters. The pressure on the markets has intensified due to the tax law, which could increase the United States' debt by USD 2.4 trillion over the next decade.

"The deficit is getting worse, and it is unacceptable to borrow at this rate," Seth Bernstein, CEO of AllianceBernstein, which manages USD 780 billion in assets, noted.

Europe attracts investors: Germany's €1 trillion plan

European markets are becoming a new magnet for capital thanks to stability and ambitious economic initiatives. Germany is investing €1 trillion in defence and infrastructure, which is supporting the growth of European equities. In May, European funds attracted USD 21 billion, bringing total YTD capital inflows to USD 82.5 billion, the highest in four years.

"With investors rattled by the U.S. administration's actions and worried about the potential drag on equity markets, this may mark the start of a medium-term trend," Michael Field, chief European strategist at Morningstar, explained.

Asia and Latin America: new safe havens

While the United States is losing ground, Asian markets and Latin American countries are gaining momentum. The MSCI APAC Index gained 10%, while the MSCI US Index showed only 2.7% growth.

"While Italy, France and the UK face rising debt burdens, many Asian economies carry lighter fiscal loads, keeping bond yields stable and investor confidence intact," Manish Rajchaudhuri, founder of Emmer Capital Partners, emphasized.

Emerging markets also attract investors. In May, 292 ETFs in these markets attracted USD 3.6 billion, bringing total inflows for the year to USD 11.1 billion. Latin America stands out as a stable region where investors are looking for protection from global turmoil.

Weakening USD and government bond crisis

The weakening of the USD and the sell-off in the United States Treasuries have undermined their reputation as safe havens. Investors are increasingly choosing markets with stronger currencies and lower interest rates. The Canadian pension fund Caisse de dépôt et placement du Québec, for example, is reducing its exposure to the United States (40% of its portfolio) in favor of the UK, France, and Germany.

What awaits investors: risks and opportunities

Rising United States debt, trade volatility, and a weaker dollar pose risks to the American markets. At the same time, Europe and Asia are opening up new opportunities thanks to economic reforms and stable currencies. Analysts advise investors to diversify their portfolios, paying attention to emerging markets and European assets.

As reported, the USD, which has long been the world's main reserve currency, is now significantly losing ground. Leading Wall Street banks, such as Morgan Stanley, JPMorgan Chase & Co., and Goldman Sachs, have publicly warned of a potential systemic weakening of the dollar in the near future.

It is also worth noting that the global economy, which has only recently shown signs of stabilisation, is once again facing significant challenges. According to its latest report, the World Bank has significantly lowered its global GDP growth forecasts. It indicates that economic development is expected to be the slowest in decades.