Market gravity reverses and drawing foreign capital towards the US

Money moves west: Surge into the US creates a 'crowded' trade, primed for relief rallies

Foreign funds are pulling back from most emerging and developed markets (EMs and DMs) and concentrating on US investments ahead of Donald Trump’s return to the White House.

 

According to Elara Capital’s Global Liquidity Tracker report, investors withdrew capital from 39 out of 41 EM and DM regions last week, while US equities attracted $8 billion in inflows, marking the 10th consecutive week of strong foreign interest.

 

Elara pointed out that this surge in capital into the US is creating a “crowded” trade, which often unravels and triggers relief rallies. Their analysis showed that similar outflows occurred during global equity panics, including in October 2022, October 2023, April 2024, and August 2024. The brokerage also suggested that elevated US bond yields might indicate a shift in the global risk landscape. 

 

While most global equities are on track to finish 2024 with modest single-digit returns, US markets have thrived. The Nasdaq 100 has gained 32 per cent year-to-date, and the S&P 500 has risen nearly 30 per cent. The strengthening US dollar is seen as a key factor driving the outflows from other markets and the positive inflows into the US.

 

At a PL Capital event, Mark Mobius, chairman of the Mobius Emerging Opportunities Fund, suggested that the rising dollar could remain a dominant force into the next year. He noted that US companies stand to benefit from Trump’s efforts to streamline government operations and reduce bureaucracy. However, Mobius also cautioned that there is a limit to how much investors will continue to funnel into the US market, with EMs like China and India likely to draw growing interest.