Investing.com -- Deutsche Bank has reported a significant decline in foreign investment in U.S. assets over the past several weeks as President Trump’s tariffs increased. According to George Saravelos, the Head of FX Research at Deutsche Bank, the recent data on U.S. capital inflows is concerning. The bank’s analysis suggests that there has been a marked cessation of foreign investor inflow into U.S. bond and equity markets over the last two months, which could present a challenge to the U.S. dollar, given the country’s twin deficits.
Deutsche Bank has been monitoring nearly 400 large Exchange-Traded Funds (ETFs) that invest in U.S. equity and fixed-income markets and are domiciled outside of the United States, primarily in Europe. These ETFs are a proxy for foreign investment activity, as they are typically used by non-U.S. investors to invest in American markets. The data indicates that there has been consistent selling of U.S. equities and bonds by foreign investors during this period.
The research highlighted that equity selling by foreigners peaked during the week when tariffs were announced but has remained negative since. Fixed-income selling began earlier in March and has continued. This persistent outflow occurred despite a recovery in U.S. asset prices last week, suggesting that foreign investors are still not inclined to invest in U.S. assets.
In addition to ETF data, Deutsche Bank has considered information from EPFR, which tracks fund flows across a broader range of investment vehicles, including passive and active, closed, and open-ended funds. The EPFR data corroborates the trend observed in ETFs, showing an abrupt halt in equity buying and even more aggressive selling in bonds. This data set includes a wider investor base and potentially slower-moving investors, which may account for the differences in the findings.