The “American Exceptionalism” trade is taking a breather.
According to LSEG Lipper data, Global ex-U.S. equity funds attracted $15.4 billion in January—the highest monthly inflow in 4.5 years. In sharp contrast, U.S.-focused funds saw just $5.7 billion in inflows (a 3-month low), signaling a decisive capital shift away from high-valuation tech stocks toward diversified international markets.
📊 THE PERFORMANCE GAP: The flows are chasing returns.
- YTD Performance: MSCI World ex-USA is up 6.4% vs. the S&P 500’s 0.54%.
- 2025 Context: This follows a breakout year where ex-US markets gained 29.2% (vs. S&P 500’s 16.4%).
- The Valuation Arb: The US market trades at a forward P/E of 22.27x, significantly more expensive than Europe (15.18x) or Emerging Markets (13.59x).
🐻 TECH JITTERS: A key driver of the rotation is growing anxiety over AI capex costs. A recent selloff was reportedly triggered by the launch of a legal tool from Anthropic, reminding investors that regulatory and legal risks in US Big Tech remain elevated.
🎯 WHERE THE MONEY IS GOING: Mark Haefele (CIO, UBS Global Wealth Management) identifies three key beneficiaries:
- China: For growth and yield potential.
- Japan: Awaiting a potential upside catalyst from the upcoming election.
- Europe: Set to benefit from structural increases in defense and fiscal spending.
💡 ANALYST TAKEAWAY: This isn’t just a tactical trade; it’s a re-pricing of risk. With the dollar weakening and the P/E gap at historic widths, investors are finally paid to look abroad. As Derek Izuel (Shelton Capital) notes: “If the rate and currency dynamics persist, the rotation could have more durability than a short-term trade.” The era of blindly buying the S&P 500 dip may be pausing.
👇 Global Allocators: Are you structurally overweighting International markets for 2026, or is the US still the “cleanest dirty shirt”?