Discussions surrounding a "Sell America" strategy have recently intensified. Although market sentiment temporarily calmed following news about a potential agreement between US President Trump and Greenland, analysts widely believe this trading theme is far from disappearing. Looking back to last year, the market was abuzz with talk of "de-dollarization," fueled by concerns that Trump's tariff-centric trade policies might prompt global investors to significantly reduce their allocations to US assets. However, the reality did not unfold as some had feared. According to available data from the US Treasury Department, in the first eleven months of last year, foreign investors were net buyers of US securities to the tune of a massive $1.27 trillion, with a substantial portion of this capital flooding into Wall Street, propelled by the artificial intelligence frenzy. But since then, the landscape has clearly shifted. A series of controversial policies enacted since Trump took office are viewed by the market as having shaken the transatlantic political and economic order built over decades, re-igniting discussions about shorting US assets.
From a stock perspective, global investors indeed hold a colossal amount of US assets. The latest official statistics show that foreign investors hold approximately $68.9 trillion in US assets, while US holdings of foreign assets stand at about $41.3 trillion, resulting in a net difference of roughly $27.6 trillion. This difference represents the US net international investment position, which has reached a record high both in nominal terms and as a percentage of GDP (exceeding 90%). In trading parlance, this means the world holds a "net long" position on the United States. Such a highly concentrated allocation, particularly in equity assets, is increasingly seen by investors as a "Sword of Damocles" hanging over the US market. Against the backdrop of Trump's assertive policies causing unease in many European nations, the market is beginning to reassess whether global investors are willing to maintain this highly concentrated position or will gradually adjust their allocation direction.
The likelihood of a large-scale exodus from US assets in the short term is still considered low, with a cautious adjustment being more probable than a collective flight. Some Nordic pension funds have signaled adjustments, but their impact is limited. US Treasury Secretary Besant stated this week that such institutions are relatively small and unlikely to substantially impact the overall market. However, this discussion has brought the concept of "Mutual Assured Destruction at the financial level" back into focus. Unlike previous assumptions, this notion is now more frequently used to describe the potential financial博弈 between the US and Europe. Past experience suggests that even a gradual adjustment of US Treasury holdings by foreign investors does not necessarily trigger severe market turbulence. Shifts in demand can often, to some extent, offset selling pressure from any single region.
Deutsche Bank strategist George Saravelos estimates that European countries collectively hold about $8 trillion in US stocks and bonds, nearly double the holdings of all other regions combined. Although trust in the direction of US policy has declined in some European countries, rebuilding trade relationships, supply chains, and strategic partnerships takes time. Rapid "de-Americanization" is both extremely difficult and fraught with high risks. As Atlantic Council senior fellow Sarah Bauerle Danzman noted, reshaping the global economic landscape is inevitably accompanied by significant wealth destruction, "which is precisely why all parties understand the risks but remain restrained."
Analysts point out that the real risk may not stem from massive capital outflows, but rather from a potential slowdown in the pace of foreign capital inflows, which could depress US asset prices and gradually erode the market narrative of "American exceptionalism." The US still faces a substantial current account deficit, requiring continuous inflows of foreign capital to finance it. While the deficit has narrowed in the last two quarters, and protectionist trade policies might further improve this situation in the short term, the US still needs net capital inflows of over $1 trillion annually. Data shows that in the first eleven months of last year, foreign investors were net buyers of $1.27 trillion in US securities, with equity investments reaching $663 billion, significantly higher than previous levels. Brad Setser, a senior fellow at the Council on Foreign Relations, noted, "Global allocation to US assets is already highly concentrated. The key issue is not persuading investors to continue holding, but whether they can be enticed to buy even more."
In terms of specific flows, European capital remains a crucial pillar of support for US Treasuries. Citigroup's portfolio flow data indicates that from April to November last year, Europe accounted for approximately 80% of foreign purchases of US Treasuries. Following Trump's announcement of sweeping "Taxation Day" tariff policies in April, Europe contributed the vast majority of the increase in foreign holdings of US debt, with overseas holdings of US Treasuries hitting a record high in November. Of course, there are signs of localized adjustments. This week, Swedish pension fund Alecta stated it had sold most of its US Treasury holdings over the past year, while Denmark's AkademikerPension plans to divest its related holdings by the end of this month. However, as Trump has recently moderated some of his tougher stances and financial market sentiment has stabilized, analysts believe a gradual rebalancing is more likely than an aggressive "Sell America" wave. Citigroup analysts noted in a report that, while the "Sell America" narrative will likely resurface, so far, there are no clear signs of European investors engaging in large-scale selling of US assets.
Comments