HSBC says rotation out of U.S. stocks and into international will continue

Published 04/04/2025, 13:12
© Reuters.

Investing.com -- HSBC analysts predict that the ongoing shift from U.S. equities to international markets will persist as concerns about U.S. growth and the impact of tariffs intensify. 

The recent announcement of significant reciprocal tariffs by President Trump has increased global volatility and raised concerns about the future of U.S. corporate earnings. 

"The size and scope of the tariffs exceeded expectations and will reinforce concerns around global growth," HSBC notes, adding that U.S. companies could face the biggest challenges due to limited scope for substitution.

This growing uncertainty around U.S. stocks has prompted a rotation in global equity flows. HSBC observes that foreign investors remain heavily invested in U.S. equities, leaving room for substantial outflows. 

"Foreign ownership in the US stands near all-time highs at 18%. That’s significant. With geopolitical tensions elevated, a reversion to pre-COVID-19 levels of 15% foreign ownership could trigger USD1.7trn in outflows from US equities," the analysts highlight.

The shift away from U.S. stocks is also linked to growing recession risks, with HSBC’s equity market implied recession probability indicator suggesting a 40% chance of a recession by the end of the year. 

As U.S. consumer fragility builds and corporate earnings expectations are lowered, the outlook for U.S. equities appears dim. 

"The upside for equities in the next few weeks is also capped and we expect further US underperformance," HSBC states.

Meanwhile, international markets, particularly in Europe and emerging markets, present more attractive opportunities. 

HSBC remains overweight on both emerging markets and Europe, with a focus on sectors such as China’s internet and consumer discretionary, and Europe’s capital goods, banks, and MDAX. 

The bank believes European equities are positioned to outperform the U.S., emphasizing the appeal of undervalued European stocks despite the challenges posed by tariffs.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.