Global Hedge Funds Sell US Stocks and Buy European Stocks

by Oh Suyon

Published 26 Mar.2024 15:31(KST)

Betting on European Stock Gains... IT Services, Large Corporations, Semiconductors

Although the S&P 500 index reached an all-time high, global hedge funds have been adding European stocks to their portfolios while reducing their exposure to U.S. stocks.

According to major foreign media reports on the 25th (local time), Morgan Stanley stated, "Since the STOXX 600 index in Europe began its upward trend in mid-January, hedge funds have bought European stocks on 7 out of 10 trading days so far."

Photo by AP Yonhap News

Hedge fund portfolio exposure to European stocks increased from less than 17% at the end of 2023 to about 19% currently. Morgan Stanley noted that the majority of investors are betting on stocks rising in Europe with long positions. The sectors attracting their interest in the European market include information technology services, chaebol conglomerates, semiconductors, electrical equipment, and life sciences tools and services.

The STOXX 600 index has risen 6.5% this year, while the S&P 500 has jumped 9.5%. Last year, the S&P 500 increased by 24%, which was twice the gain of the STOXX 600 index. As a result, many investors believe that U.S. stocks are trading at a significant premium compared to global stocks.

Michael Wilson, Morgan Stanley’s equity strategist, said, "The potential for further gains in the U.S. stock market depends on improved earnings forecasts for this year and next year."

Goldman Sachs’ portfolio strategy team stated, "Since the discount rate between the two regions has reached historically high levels, Europe has room to catch up with the U.S."

However, Bank of America (BoA) securities strategists do not believe that U.S. stocks are overvalued compared to European stocks. They explained that most of the premium is related to the S&P’s heavy weighting in the technology sector. They added that not only the economic outlooks of the U.S. and Europe but also the low volatility of U.S. stocks explain why U.S. stocks trade at high multiples.