Source: Wall Street See
In the past month, around $30 billion in new funds have flowed into stock funds globally, with as much as 94% invested in USA assets; in Q1, overseas investors purchased $187 billion in csi enterprise bond index, a YoY increase of 61%.
Despite the debt problem and political division caused by the election in the United States, global investors have been “clustering” American stocks and bonds, as Europe's election pressure and the Bank of Japan's latest delay in outlining details of its exit strategy undermines the risk of the yen exchange rate.
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"In the US, there is a group of AI/technology-related companies that are unbeatable anywhere else in the world...
(Therefore, the appeal of the US market to global investors) may continue for a period of time until these factors change or suitable alternatives emerge."
In the context of the extremely high weight of the largest technology companies, Que Nguyen, chief investment officer of stocks at investment firm Research Affiliates, thinks the pursuit of US stock returns also brings risks:
"We have entered an era where large companies are getting bigger, and it is unclear whether this can be sustained....
The dominant position of large US companies will face challenges and potential threats from smaller companies or overseas competitors."
Even though the US Federal Reserve hinted at slowing down the pace of raising interest rates and the intense uncertainty brought by the US election, global investors have still rushed into the US market.
EPFR Global data collected by TD Securities shows that in the past month, about $30 billion in new funds flowed into equity funds, of which as much as 94% was invested in US assets, especially in the tech sector, with the indicator of investor preference for US stocks hovering at a three-year high.
"Three trillion-dollar giants" took turns hitting historic highs, and AI/technology-related companies became the "top target" of fund clustering. Senior global market strategist Sameer Samana of Wells Fargo Investment Research Institute said:
"The US has the biggest and most innovative companies, which have strong earnings growth and also benefit from the country's current 'safe haven status'....
Excluding the US, the MSCI global index fell more than 2%. The Bank of Japan's lack of detailed explanation of its bond-buying program put pressure on the yen, while Europe's situation was worse. After French President Macron decided to hold early elections, the French stock market saw its biggest decline in more than two years, wiping out all of its gains in 2024.
Ulrich Urbahn, head of asset strategy at investment firm Berenberg, said:
"The US has the largest and most innovative companies, strong earnings growth, and also benefits from the country's current 'safe haven status'....
Momentum begets momentum. FOMO (fear of missing out) is also clearly a factor."
Coming to the US stock market, AI/technology-related companies have become the "top target" of fund clustering. According to data compiled by EPFR Global and Bank of America, the inflow of funds into the US tech sector reached $2.1 billion this week, the highest level since March.
Data shows that the only sector to increase its exposure in US long-term equity mutual funds this year is technology. According to data compiled by strategist Venu Krishna of Barclays Bank, the low allocation proportions of banks, medical care and non-essential consumer goods companies are constantly increasing in these investment portfolios.
Meanwhile, under the background of the three Mag 7 concepts gradually being forgotten and the three "trillion-dollar giants" with extremely high weights in the market playing a leading role, the "concentration risk" of the US stock market seems to be increasing, and the phenomenon of market differentiation is becoming more and more obvious. Financial blog Zerohedge commented:
"The US has the largest and most innovative companies, strong earnings growth, and also benefits from the country's current 'safe haven status'....
"Now it seems that only the top three technology companies - Apple, Microsoft and Nvidia - are important, and their market capitalizations are almost the same, around $3.2 trillion...... In fact, there is nothing more important than these three companies now."
Data shows that although the S&P 500 has set a new high for four consecutive weeks this week, the equal-weighted S&P has not changed in the past four months.
This phenomenon not only exists in the comparison between technology and non-technology stocks, but also in the amazing divergence within the technology sector - for example, on Thursday, 72% of the Nasdaq's constituent stocks closed lower, and the number of stocks that hit new lows was more than twice the number that hit new highs, but the Nasdaq still hit a new high that day.
The equal-weighted Nasdaq index has performed poorly on 9 of the past 10 days.
The concentration of U.S. assets has also created problems for investors who follow a geographically diversified strategy. Data compiled by Bloomberg shows that less than 7% of the 644 ETFs focused on international assets outperformed.$S&P 500 Index (.SPX.US)$.
Editor/tolk