Global Hedge Fund Capital Leaving US Heads to Europe

Overvaluation of Tech Stocks and Additional Tightening
US Stock Investment Proportion Hits All-Time Low
European Investment Proportion Reaches All-Time High

Global hedge funds' stock market funds are shifting from the United States to Europe.

On the 11th (local time), major foreign media reported that global hedge funds have lowered their bets on the rising U.S. stock market to the lowest level in 10 years, instead investing in European stock markets.

According to Goldman Sachs' prime brokerage data, hedge funds' investment proportion in U.S. stocks has dropped to the lowest level since the related data collection began in 2013, while the investment proportion in European stocks has risen to an all-time high. Vincent Lin, an analyst at Goldman Sachs, evaluated that "hedge funds have started to prepare for downside risks in the U.S. stock market."

Allison Sabas, Investment Director at Antipode Partners, a hedge fund headquartered in Australia, said, "The stock prices of some large tech stocks such as Nvidia, Apple, and Amazon, which led the U.S. stock market rally this year, are judged to be significantly overvalued compared to future earnings prospects," adding, "It is difficult to find grounds to justify the current price-to-earnings multiples of these tech stocks."

The atmosphere that a resumption of interest rate hikes is certain this month also acts as a burden on further rallies in the U.S. stock market. The U.S. central bank, the Federal Reserve (Fed), has announced two interest rate hikes within the year, starting with the monetary policy meeting scheduled for the 25th-26th.

John Williams, President of the New York Federal Reserve Bank, stated in a public speech that "the U.S. economy will grow at a slower pace from the second half of this year through early next year," and "there is still a way to go for policy to reach a sufficiently restrictive level."

[Image source=Reuters Yonhap News]

Funds exiting the U.S. stock market are heading toward European stock markets. Since European stock markets have generally been sluggish this year, their valuation appeal is considered high. Ankit Gidya, Head of European Equity and Derivatives Strategy at BNP Paribas, said, "As monetary tightening continues, value stocks are expected to outperform growth stocks," adding, "This is a relatively more favorable environment for the undervalued European stock market." The pan-European Stoxx 600 index has risen only 5% this year, while the London FTSE 100 index has fallen 2.3% (based on the closing price on the day).

However, since hedge fund capital is perceived as short-term investment funds, there is also analysis that the hedge funds' pivot in the U.S. stock market may be a temporary phenomenon. An executive in charge of Prime Broker Services (PBS) at a major U.S. investment bank warned about investing in European stock markets, saying, "Despite rising interest rates, the U.S. economy has shown growth exceeding market expectations, whereas Europe has entered a technical recession." Despite recession forecasts, the Nasdaq index rose 31% in the first half of this year, reaching its highest level in 40 years. The S&P 500 index also rose about 15%.

This content was produced with the assistance of AI translation services.