"Anniversary of Liberation Day" rings the alarm! With the collapse of the "American exceptionalism" theory, funds are shifting their focus away from the US market.

One year ago, on April 2, 2025, in local time in the United States, President Donald Trump appeared in the White House Rose Garden and announced a policy that later became one of the most iconic of his second term. The U.S. President revealed a long list of tariffs divided by country, calling it his "Liberation Day" global tariff trade policy - this move sparked intense selling panic and volatility in global financial markets at the time. The highly anticipated tariff list at the time included high tariffs on imports from many trading partners, including 34% on Chinese goods, 20% on the EU, and 46% on Vietnam. The subsequent record-level market sell-off swept through various asset classes globally - including US stocks, bonds, and the dollar all faced significant selling pressure, which later turned into the theme of "Sell America" trading. In the 12 months since "Liberation Day," U.S. assets have experienced more volatile fluctuations closely related to Trump's unpredictable policy combinations - giving rise to various trading strategies from ABUSA (Anywhere But the USA) to TACO (Trump Always Chickens Out). The still very popular "TACO" trading strategy emerged during the time when Trump launched an unprecedented "tit-for-tat tariff" battle globally in April 2025. The "TACO" strategy has since been widely adopted by traders as the hottest trading strategy, with investors betting that he will eventually back down or that the actual implementation of policies will weaken significantly from Trump's verbal threats, then choosing to buy in heavily at the right time of low tide, betting on a massive rebound in the stock market shortly after. Since Trump's "Liberation Day" announcement, some international markets, including Brazil, the UK, and Japan's benchmark indices, have outperformed the S&P 500 index, as investors - especially those outside the US markets - urgently seek diversified allocations to reduce their overreliance on investment returns in the US market. Shortly after, Washington reached a series of trade agreements, lowering tariff rates on several key trading partners such as the EU, UK, India, and Switzerland. However, in February of this year, the underlying logic of this tariff system was overturned as the US Supreme Court ruled it illegal; a judge subsequently ordered the Trump administration to prepare to refund billions of dollars to importers who had paid these tariffs, but the specifics of how and the legal guidelines have yet to be announced. Last month, Trump initiated a Section 301 investigation on more than ten trading partners, including China, the EU, Japan, Switzerland, and India, paving the way for the White House to impose further import tariffs on these economies. Previously, he had imposed a 10% "universal" tariff on imported goods, with the US government indicating that this rate would soon increase to 15%. Is 2025 the official beginning of the end of "American exceptionalism"? AJ Bell Investment Director Russ Mould said in a report on Monday that investors continue to reassess their exposure to the United States. He said, "Tariff policies and aggressive trade measures, challenges to the Fed's monetary policy independence, and the ongoing military actions in Latin America and the Middle East, along with the threat of military force around Greenland, are combining to prompt investors to reconsider the narrative of 'American exceptionalism' in the political, economic, and military realms." Mould added that Trump's so-called reciprocal tariffs announced in April last year "elevated trade policy to a whole new level." While he noted that neither the stock market nor the bond market welcomed this policy, Mould also said that when Trump retracted some of the tariff policies, the market quickly rebounded. "However, it does seem that investors are really considering where they should allocate capital in the world after 'Liberation Day' - and this is a world where a presidential social media post carries significant weight politically, economically, and militarily," Mould said. "While the US stock market may have bounced back strongly from 'Liberation Day,' it is no longer the preferred destination for some international investment institutions - and for most of the time since the end of the global financial crisis in 2009, the US has been the global capital concentration point. In other words, now it's no longer a situation of 'America first, all else second.'" According to AJ Bell's analysis, since "Liberation Day," the returns on the Shanghai Composite Index of China A shares, South Korea's Kospi index, and Japan's Nikkei 225 index have all outperformed Wall Street's three major indices, with emerging market benchmark index leading the way. Last year, AJ Bell's statistical data pointed to a trend: the increasing attractiveness of global funds excluding the United States, with some investors deliberately excluding the US from their search for new investment funds. Daniel Casali, partner at London-based investment strategy firm Evelyn Partners, said on Thursday that in terms of British pounds, the MSCI USA index has risen by 14% since "Liberation Day" on April 2 last year - lagging behind the 18% increase in the MSCI Global All Countries index. He said, "The relative weakness of the US stock market may reflect the impact of President Donald Trump's 'America first' policies, which have prompted increased defense and infrastructure spending in Europe as part of broader fiscal stimulus. The market also anticipates the narrowing premium of US growth compared to that of Europe, which is supporting European market valuations, especially in comparison to the more expensive US market - particularly against the background of the increasingly unpredictable White House policy decisions." Ron Temple, senior market strategist at international asset management giant Lazards, said that 2025 has already marked the formal beginning of the end of the narrative of "American exceptionalism"; Temple said that as global investors reconsider US assets, the continued and long-term weakness of the US dollar and the sustained international sell-off of US Treasuries leading to a steep yield curve will likely be significant milestone events. Ron Temple's future outlook on investment strategy often sparks heated discussions in the financial markets. He accurately predicted the timing of the Bank of Japan's rate hike ending negative interest rates in 2024, and successfully predicted that emerging market stocks would significantly outperform US and developed market stocks in 2025. In a recent interview, Temple warned that investors should consider significantly reducing the scale of their allocations/exposure to US stock assets and instead increase allocations to stocks in regions that have experienced deeper declines, such as the Japanese stock market and stocks in economically resilient emerging markets. Temple expects that as fiscal pressures continue to rise, the yield curve will become steeper, driven by factors such as higher defense spending in the US and more NATO member countries, potentially escalating defense spending in the Middle East, and the continued high US government deficit and growing interest payments. "In my personal expectation, the US fiscal deficit over the next decade will reach 6.5% to 8% of GDP annually," he emphasized, adding that this will ultimately be a long-term negative catalyst for the stock market. For over a decade, "American exceptionalism" has swept the world, and US market investors have long enjoyed the best returns globally, but since 2025, "American exceptionalism" has seen significant cracks, as the Trump administration's aggressive trade policies of imposing additional tariffs and frequent geopolitical conflicts have increasingly worried investors about the risks of the US economy entering a period of "stagflation" or even "deep recession," which is the core logic behind the continued weakness of US Treasury assets since 2025. The US market is no longer the only answer! One year after "Liberation Day," global investors reassess fund flows However, Casali from Evelyn Partners added that while it has been advantageous to underweight US stocks in the past year, this does not necessarily mean that the US will perform poorly in terms of investment returns in the long term. He said, "The US economy has historically had a strong and robust expansion compared to other major developed economies, giving domestic companies more room for revenue expansion," adding that the US remains a leader in global innovation. He said, "Ultimately, diversification is key to investing - maintaining a balanced exposure between US stocks and other global markets." Nigel Green, CEO of the deVere Group, said on Thursday that one year after "Liberation Day," the S&P 500 index "has still delivered relatively impressive performance," but the composition of fund flows has changed. While noting that capital has not fully exited the US, Green added, "The direction of new fund flows is important," pointing out that there has been a noticeable increased allocation of funds to India, Japan, and parts of Southeast Asia. Green also emphasized that institutional investors' fund flows reflect their desire to hedge against concentrated risks in US policy. He said, "Investors no longer see the US as a uniform opportunity; they are picking sectors that align with policy tailwinds while avoiding areas exposed to trade disruptions." "'Liberation Day' accelerated market differentiation. On one hand, companies aligned with domestic production, AI infrastructure, and energy security are attracting inflows; on the other hand, US companies with high global market exposure and complex supply chains are facing greater scrutiny, and in some cases, valuation compression." Green added, "The narrative of 'American exceptionalism' still exists in some institutional strategies, but it is no longer automatic." He said, "Asset allocators are conducting more rigorous comparative analysis; they are examining governance, policy clarity, and exchange rate risks in various regions. The US still holds a central position, but it now has to work harder to attract capital." Dorian Carrell, multi-asset income manager at Schroders, emphasized that recent new changes driving international investors to rethink allocations include uncertainty surrounding the Iran war, pressure in the private credit sector, and high AI capital expenditures. He said, "After one year since 'Liberation Day,' the environment that used to be synchronous and policy-driven is giving way to one shaped more by domestic priorities, geopolitical friction, and more unpredictable policy coordination." Carrell stated that some data suggests that "opportunity clustering seems to lean more towards sectors and regions outside the US market," with Europe and Japan particularly prominent from a pure valuation perspective. He said, "Looking ahead, concerns about private credit, market capitalization overly concentrated in tech giants, rapidly evolving business models, and steepening yield curves all indicate that moderate diversification from the US market is a reasonable investment strategy. While the US still offers very attractive opportunities, we believe that many other regions have already priced in more uncertainty, particularly much less policy uncertainty."