Capital Flows Shift from U.S. Stocks to Europe and Emerging Markets

Amid growing concerns over U.S. fiscal policy, rising public debt, and the risk of a recession driven by trade tensions, global investors are increasingly redirecting capital away from U.S. equities into European and emerging markets.
According to data from LSEG Lipper, U.S.-domiciled mutual funds and ETFs saw $24.7 billion in net outflows in May—the largest in a year. In contrast, European funds attracted $21 billion, bringing year-to-date inflows to $82.5 billion, the highest in four years. Meanwhile, emerging market equity ETFs recorded $3.6 billion in inflows last month, pushing total inflows this year to $11.1 billion.
💸 What’s driving this shift?
Weakened appeal of U.S. assets, as the dollar declines and U.S. Treasury bonds sell off.
Lower interest rates in Europe, combined with Germany’s €1 trillion stimulus package, boosting investor confidence.
Stronger fundamentals and lower debt levels in Asia, making Asian markets more attractive than some debt-laden developed economies like Italy, France, and the UK.
📊 Year-to-date market performance:
MSCI United States: +2.7%
MSCI Europe: +20%
MSCI Asia Pacific: +10%
🔎 Current forward 12-month P/E ratios:
U.S.: 20.4
Europe: 13.5
Asia Pacific: 14.2
Michael Field, Chief European Market Strategist at Morningstar, noted that the rotation out of the U.S. was initially valuation-driven but is now increasingly fueled by a broader shift in investor sentiment. This may signal the beginning of a medium-term trend in global asset allocation.
🎯 Key takeaway: Investors are reassessing risk and opportunity—not just based on short-term performance but also on monetary policy, fiscal health, and long-term growth potential. Now is the time to think beyond borders when shaping investment strategy.