"America First" halo fades! U.S. stocks fall behind, as funds flow faster into the European and Asian stock markets.

With artificial intelligence and policy dilemmas continuing to exist, the halo of the "America First" concept is gradually fading. The US economy is overly reliant on technology and the service industry, combined with the chaotic trade policies of the Trump administration, making long-term business planning complex and leading to a shift in investment preferences - rotating towards non-US stock markets. Investors are being attracted to European and Asian markets, where companies are undervalued but with profit growth prospects similar to the US stock market. Some strategists predict that the story of structural valuation reassessment is just beginning. The S&P 500 index has been fluctuating near historic highs in February, with selling pressure being quickly offset by buying at low levels. Eventually, the index remained largely unchanged. In contrast, trading conditions in overseas markets are much more optimistic. The MSCI Global Index, excluding US stocks, has risen by nearly 5%, outperforming US benchmark indices and achieving the largest outperformance since the deep drop during the 2009 financial crisis. Since 2016, the US stock market has lagged behind global stock markets by over 9 percentage points. Last year, international stock markets outperformed the US stock market by 12 percentage points, marking the best outperformance since 1993. Although the escalation of conflicts in the Middle East has disrupted US and global markets, this trend seems likely to continue. UBS strategists have downgraded the weighting of US stocks to neutral - which is not a shameful act per se, but for a market that gathers the most valuable companies globally, it is undignified. Furthermore, investors have slowed their pace of investment, with data from Bank of America showing that only $26 out of every $100 flowing into equity funds this year has gone into US stocks. The reasons for the shift in investment preferences are longstanding. The US economy's overreliance on technology and the service industry makes it vulnerable to the impact of artificial intelligence tools. The chaotic trade policies of the Trump administration also make long-term business planning unusually complex. Investors believe that the time when US assets outperformed has been long enough, and new frontrunners will emerge sooner or later. In recent weeks, the latter point has become even more important as investors look at European and Asian markets, finding that these companies are cheaper in valuation compared to US companies, but with similar profit growth prospects. Alessandro Valentini, Director and Fundamental Investment Portfolio Manager at Causeway Capital Management, said, "Our explanation is very simple: the risk premium for US stocks is close to zero. Outside the US, the risk premium for stocks is higher, which means investors can get higher returns by taking on risks. This is crucial, especially after the market volatility in 2015." The US market has been volatile since the beginning of the year. The Chicago Board Options Exchange Volatility Index (VIX) has broken through 20 multiple times. The actual volatility has reached its highest level since November last year, and the intraday volatility has also widened. Most of the volatility stems from the so-called "artificial intelligence panic trading," which repeatedly hit various market sectors in February. However, the Trump administration also deeply intervenes in industrial and commercial policies, sometimes artificially supporting winners in certain industries, which is at odds with long-standing capitalist conventions. Furthermore, the US Supreme Court overturned most of President Trump's tariff plans, leaving companies and consumers confused about current policies. The White House has implemented a 10% global tariff and is preparing to raise tariffs to 15%, but these tariffs will only last 150 days unless authorized by Congress - a situation unlikely to happen before the midterm elections in November. Gina Martin Adams, Chief Market Strategist at HB Wealth Management, said, "This may continue to drive better performance of non-US domestic assets. Policy volatility challenges the assumption that the US market will continue to be the most investor and business-friendly, so capital may continue to diversify into other globally stable regions." According to data tracked by Bank of America, more and more investors share this view. Michael Hartnett, Chief Investment Strategist at Bank of America, said that the unpopularity of US stocks relative to international peers has persisted for over five years. However, this data does not completely negate the current situation of the US stock market; it's just that the US stock market no longer has the same uniqueness as before. Aniket Shah, Global Head of Washington, Sustainable Development, and Transformation Strategies at JB Capital Group, said that US policy volatility has become a long-term advantage for other regions in the world. He said, "The policy situation in the United States has certainly become more uncertain. Investors may ask themselves: do I really need to have 80% of my assets in a country with somewhat unstable policies? Maybe not." Adrian Helfert, Chief Investment Officer of Multi-Asset Strategies at Westwood Holdings Group, said that European stocks, particularly in the industrial, defense, and banking sectors, are most attractive. Increased government spending on infrastructure, energy projects, and weapons equipment in Europe should boost these sectors. He also noted that financial companies in the region will benefit from this. "It's not a 'dodging the storm' trade, it's a structural reassessment story that is still in its early stages," he said. Even after the drop in February, the S&P 500 index is less than 2% away from its historic high, with a price-earnings ratio (based on expected earnings for the next 12 months) of over 20 times, still higher than valuation levels in other regions. Meanwhile, the earnings growth of US companies may have reached its peak, making it difficult to justify paying a premium. Soliane Varlet, Portfolio Manager at Paris Mirova, said, "The valuations of the US market are still higher than those of the European market. So there is still controversy regarding valuations." She also said that in Europe, there is more positive news, while the US market may have more uncertainty. The weakening of the US dollar is also worth noting, as it may bring more advantages to emerging markets. Jung In Yun, CEO of Fibonacci Asset Management Global in Singapore, said, "If these dynamics lead to a structurally weak US dollar, the rationale for diversified regional investments becomes even more compelling. In this environment, profit-taking may occur in crowded US positions, and funds may gradually shift to other stock markets, with liquidity diversifying from large-cap tech stocks to a broader range of industries, making this scenario more likely to happen."