Global investors retreat from U.S. over trade, debt fears

Growing concerns over U.S. trade policies and rising debt levels are prompting major global institutional investors to pull funds out of the U.S. market and shift investments to other regions, the Financial Times reported on Thursday.

The article highlights how the U.S. government's erratic trade policies have disrupted global markets, contributing to a weakening of the U.S. dollar and the underperformance of U.S. capital markets this year. Additionally, the "Big and Beautiful" tax reform pushed by the Trump administration is expected to reduce U.S. tax revenues by $3.7 trillion and increase the deficit by $2.4 trillion over the next decade, according to the Congressional Budget Office. These factors are causing institutional investors to reassess their U.S. holdings.

Last month, Bank of America's Global Fund Manager Survey showed that allocations to U.S. assets had reached their lowest levels in nearly 20 years, signaling a significant shift in investor sentiment.

U.S. investment firm AllianceBernstein, which manages nearly $800 billion in assets, noted that the country's current fiscal deficit is unsustainable, and heightened trade policy uncertainty requires investors to reconsider heavy reliance on the U.S. market. An executive from a large U.S. private equity firm also indicated that the U.S. government's tariff policies have raised alarms among investors, who are now wary of being overly dependent on U.S. assets.

The report pointed out that many institutional investors are now questioning the notion of "American exceptionalism" and adjusting their global portfolios.

Schroders, an asset management firm, has already observed initial signs of investors moving away from the U.S. market. Meanwhile, Neuberger Berman reported that 65 percent of its private equity investments this year have gone to Europe, up from the previous 20 to 30 percent. The company cited growing uncertainties around U.S. domestic policies and tax reform risks as key factors influencing their more cautious approach.

Furthermore, Canada's second-largest pension fund, CDPQ, also announced plans to reduce its exposure to U.S. assets – which currently account for about 40 percent of its portfolio – in order to mitigate risk.