Global investors hold a record $69 trillion in U.S. assets, or $27 trillion net of Americans’ foreign holdings, giving markets enormous exposure to shifts in sentiment. Concerns over U.S. trade policy, strained relations with allies, and geopolitical uncertainty have prompted analysts to consider which countries might scale back investments in the world’s largest economy.
Major holders, moderate incentives
Japan is the largest foreign holder of U.S. debt and the third-largest holder of U.S. equities, with roughly $1 trillion in stocks and $1.5 trillion in bonds. However, U.S. assets represent only 19% of Japan’s total equity holdings and 14% of its debt portfolio. Analysts say strong home-country bias and diversification needs limit Japan’s incentive to reduce holdings.
European investors also hold significant U.S. Treasuries, with about $2 trillion in total. While exposure is rising, souring U.S.-European relations could slow or even reverse these purchases, analysts note.
Smaller countries, higher relative exposure
Smaller economies are comparatively more exposed to U.S. assets relative to their overall portfolios. Norway, Canada, and Denmark hold large shares of U.S. equities, while Switzerland and Norway hold substantial portions of debt in American securities. These countries are more likely to rebalance or reduce exposure if market or geopolitical pressures intensify.
Exchange rate considerations complicate any repatriation. The U.S. dollar has recently weakened against the euro, pound, and other major currencies, making large-scale selling potentially destabilizing. For example, the Swiss franc surged to an 11-year high on Tuesday, highlighting the currency risks involved.
Market implications and portfolio rebalancing
Given the global net long position in U.S. assets, some reduction in exposure seems inevitable. This could occur through passive rebalancing or active selling, particularly if earnings in Big Tech or AI-related equities disappoint.
Goldman Sachs analysts estimate that U.S. equities would need to outperform non-U.S. markets by 4–5% this year to justify their high weightings. With last year’s relative performance below this threshold, and global valuations remaining stretched, diversification away from U.S. assets may appeal to overexposed countries and investors.
Analysis
The “Sell America” trade is likely to be driven not by the largest holders like Japan or Europe, but by smaller countries with concentrated exposure to U.S. equities and debt. While macroeconomic and currency risks may restrain abrupt moves, geopolitical tensions and disappointing tech sector performance could trigger gradual portfolio shifts.
Overall, even modest rebalancing could have significant implications for U.S. financial markets, given the sheer scale of foreign investment. Analysts warn that global portfolios are increasingly sensitive to Washington’s policy signals, underscoring the interconnection between U.S. domestic policy, international relations, and market stability.
With information from Reuters.
