Foreign Investment in US Assets Declines Amid Tariff Concerns

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Overview of Current Investment Trends

Deutsche Bank (NYSE:DB) has highlighted a notable reduction in foreign investments in US markets, coinciding with President Trump’s recent tariff increases. George Saravelos, who leads FX Research at Deutsche Bank, pointed out that the latest data regarding US capital inflows is alarming.

Analysis of US Capital Inflows

The bank’s scrutiny reveals a significant slowdown in foreign investments directed towards US bonds and equities over the past couple of months. This slowdown presents a potential challenge for the US dollar, particularly in light of the country’s existing twin deficits.

Tracking Foreign Investment Patterns

Deutsche Bank monitors approximately 400 large Exchange Traded Funds (ETFs) that are primarily domiciled outside the US, mostly in Europe. These ETFs serve as a barometer for foreign investment activities, as they are frequently employed by non-US investors targeting US markets. The data indicates a consistent pattern of US stock and bond sales by foreign investors during this period.

Impact of Tariff Announcements

The research notes that foreign equity sales reached a peak the week tariffs were announced, and have continued on a negative trajectory since. Sales of fixed income assets began in early March and have persisted.

Market Reactions and Investor Sentiment

This sustained outflow has occurred despite last week’s rebound in US asset prices, suggesting a continued reluctance among foreign investors to engage with US assets.

Additional Data Insights

Beyond ETF data, Deutsche Bank also analyzed information from EPFR, which tracks fund flows across a wider array of investment vehicles, including both passive and active, as well as closed and open-end funds. The EPFR data corroborates the trends observed in ETFs, revealing a sudden cessation in equity purchases and even more pronounced bond sell-offs. This dataset encompasses a broader investor demographic, potentially including slower-moving investors, which might account for the observed discrepancies in findings.