US stock market vulnerable to foreign investor flows

In this podcast, Edmund Shing, Global Chief Investment Officer, discusses the risks to the American stock market from shifting foreign investor flows.

• Foreign investors have significantly increased their holdings in US financial assets, totaling 10 trillion dollars between 2020 and 2024, with European investors holding 49% of these assets.

• The S&P 500 is currently expensive at 20x forward PE compared with its long-term average of 16x, while the eurozone and Japan markets are fairly valued or cheap.

• There is a “double whammy” risk for US equities as foreign investors may reduce exposure due to under-performance, high valuations and a weakening US dollar, potentially leading to further derating and currency losses.

• We prefer US stock exposure via the S&P 500 equal-weighted index, along with rebalancing towards international stocks in the UK, eurozone, Japan, and possibly China.

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