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Investing.com -- Foreign investors are expected to continue buying U.S. stocks despite recent market underperformance and a downgrade in the U.S. growth outlook, said David J. Kostin, chief U.S. equity strategist at Goldman Sachs.
Goldman forecasts $300 billion in net foreign purchases of U.S. equities in 2025, only slightly below the $304 billion seen in 2024. The bank expects corporates to be the largest buyers at $675 billion, followed by households at $425 billion.
“Mutual funds will be the largest seller of U.S. equities (-$550 billion) followed by pension funds (-$250 billion),” Kostin said in a Friday note.
The forecast comes amid investor concerns over the implications of weaker U.S. equity returns relative to other regions. The S&P 500 has declined 3% year-to-date (YTD), trailing the 9% gain in Europe’s STOXX 600. Still, Goldman believes the weaker dollar and relative valuation support foreign demand.
“Our model implies that, following the 2% YTD depreciation in the trade-weighted U.S. dollar and recent underperformance relative to global equities, foreign investors will be net buyers of U.S. equities in 2025.”
Ownership trends also support this view. Foreign investors now hold 18% of U.S. equities, a record high, up from 7% in 2000. Nearly half of that exposure comes from Europe.
Longer term, Kostin points to structural advantages in U.S. markets, including liquidity, scale, and growth potential.
The S&P 500’s $48 trillion market cap is multiple times larger than its global peers, and turnover is nearly three times higher than in non-U.S. markets. The U.S. also leads in investment spending, with a “Growth Investment Ratio” of 42% compared with 26% for the rest of the world.
Similarly, the return on growth investment is also larger in the U.S. (80%) compared to other global markets (73%).
“Maintaining U.S. equity market exceptionalism will require both the magnitude of growth investment and the returns on those investments to remain elevated during the next several years,” Kostin noted.
Goldman Sachs projects S&P 500 earnings per share (EPS) growth of 7% in both 2025 and 2026. Even after recent revisions, these estimates remain above Europe’s projected 4% and 6% growth in those years.
Still, Kostin points out several risks that could affect foreign investment in U.S. equities. These include elevated policy and economic uncertainty, a weaker relative outlook for U.S. economic and earnings growth, and potential disappointments in returns from AI-related investments, which could lead companies to scale back growth spending.
Stocks with high foreign ownership could be vulnerable if sentiment changes. Kostin notes that foreign investors hold 28% of the median stock in its top-30 screen, nearly double the median S&P 500 company.