Capital rotation: where American money is moving now

U.S. retail and institutional pools have reduced exposure to domestic stock vehicles, creating an observable outflow trend. Data show about $75 billion moved away from U.S. equity products in the previous half‑year, and roughly $52 billion exited since the start of 2026.

Investors are reallocating into overseas opportunities where recent returns and specific demand signals have outpaced U.S. indices. In the current year‑to‑date, approximately $26 billion has flowed into developing‑market stocks, with country‑level hotspots including South Korea ($2.8B) and Brazil ($1.2B). Exchange‑traded products such as the iShares MSCI Emerging Markets ETF have rallied sharply from 2023 lows and are trading near a technical resistance zone in the mid‑$60s, underscoring growing appetite for EM exposure.

Currency moves are amplifying the picture. While the dollar has weakened roughly 10% against a broad basket since January, episode‑level swings tied to Fed‑nomination headlines and political developments produced intraday moves of about 1%, encouraging managers to expand currency hedging programs and rethink unhedged allocations.

• Regional performance has diverged: the S&P 500 climbed roughly 14% over the past year, while Tokyo’s index gained about 43%.
• Europe’s broad gauge rose near 26%, China’s large‑cap gauge returned around 23%, and Korea’s main index has roughly doubled.
• Sector rotation is evident: gains in financial and industrial names overseas have outshone many U.S. growth‑heavy pockets, while semiconductor suppliers and AI‑infrastructure vendors in Asia have attracted dedicated flows on improving order books.

Market strategists point to a mix of valuation‑driven reweighting and event‑driven reallocations. Forward price/earnings ratios in the U.S. remain elevated versus peers, giving managers a reason to seek lower‑multiple markets. At the same time, compact policy and geopolitical developments — public tariff signals from Washington, heightened political unpredictability, and headlines around central‑bank leadership — have punctuated the window and amplified international flows.

Corporate and technology developments have reinforced the rotation. Reports that high‑end AI accelerators cleared import hurdles in some markets and stronger supply‑chain indicators from upstream chipmakers have increased conviction among investors looking to capture hardware‑led growth outside the U.S. The result is a mix of tactical performance chasing and longer‑term strategic reallocation toward Asia, Europe and Latin America.

Fixed‑income desks have reacted in parallel: many managers trimmed duration, increased allocations to shorter‑dated or inflation‑linked instruments, and raised liquidity buffers as policy and legal noise pushed real yields around. Portfolio teams describe the current state as an information‑rich experiment — reweighting offshore while preserving core U.S. exposure and expanding scenario‑based hedging frameworks.

What this means for investors: portfolios may see increased non‑U.S. equity weightings, with managers emphasizing currency hedging, sector selection and supply‑chain due diligence as they build offshore exposure. Expect more demand for foreign‑focused ETFs, hedged strategies and active regional funds in the near term.