"From 'Sell America' to 'Buy Korea'... U.S. Funds Shift to Emerging Markets"

2.8 Billion Dollars Flow Into Korea Alone This Year

As U.S. investors move their funds overseas, the Korean stock market has emerged as the largest destination for capital inflows. Since the beginning of this year, 2.8 billion dollars (about 4 trillion won) has flowed in, the largest amount attracted among emerging markets.

Reuters and Yonhap News

Reuters reported on the 21st (local time), citing data from Lipper under financial information provider LSEG, that over the past six months, U.S.-based investors have withdrawn about 75 billion dollars (about 108 trillion won) from U.S. equity products. In just the eight weeks so far this year, 52 billion dollars (about 75 trillion won) has flowed out. This is the largest amount for the first eight weeks of a year since at least 2010.

According to LSEG, since the beginning of this year U.S. investors have invested about 26 billion dollars in emerging-market equities. By country, Korea received the most at 2.8 billion dollars, followed by Brazil with 1.2 billion dollars. A February fund manager survey by Bank of America (BofA) showed that investors have shifted money from U.S. stocks to emerging-market stocks at the fastest pace in the past five years.

In terms of returns as well, overseas markets have outperformed the U.S. stock market. Over the past 12 months, the S&P 500 Index has risen about 14 percent. In dollar terms, however, Tokyo’s Nikkei has climbed 43 percent, Europe’s STOXX 600 Index 26 percent, and Shanghai’s CSI 300 Index 23 percent. The KOSPI has doubled.

Reuters assessed that concerns over the potential risks of artificial intelligence (AI) and the related costs have somewhat weakened the appeal of Wall Street stocks. The sharp surge in mega-cap U.S. technology stocks that had driven the uptrend has also heightened investor caution. As a result, many are seen as seeking more attractive opportunities overseas.

As share prices of AI leaders such as Nvidia, Meta, and Microsoft have soared, investors have begun to feel burdened by excessively high valuations. Instead, they are looking for so-called value stocks, including traditional industrial names and defensive stocks that have a large weighting in certain overseas markets such as Germany, the United Kingdom, Switzerland, and Japan.

Laura Cooper, global investment strategist at Nuveen, said that the rotation on Wall Street from so-called growth stocks such as technology names into value stocks is occurring on a global scale. She noted that “U.S. investors are increasingly looking at global markets from a valuation perspective,” and pointed to the cyclical growth recovery centered on Europe and Japan.

The fact that U.S. equities are trading at higher valuations than other regions is also cited as a driver of this capital shift. The S&P 500’s forward price-to-earnings ratio (PER) stands at about 21.8 times. By contrast, European equities trade at around 15 times, while Japan and China trade at roughly 17 times and 13.5 times, respectively.