In light of the uncertainty about the US economy, investors have begun to diversify their investment portfolios, and transfer part of their money to assets in Europe and China, so how important is this trend?
The Financial Times reported that investors withdrew $34 billion from US stock funds this year 2023, and at the same time $10 billion went to European stock funds, while flows to Asian funds amounted to about $16 billion.
It is easy to explain this trend. At the end of last year, American indices fell more than European indices, and the exodus of capital from the American market is related to the banking crisis in the United States and the continuous increase in the main interest rate by the US Federal Reserve, which has already reached five. percent, which increases the likelihood of an economic recession.
Monetary policy is being tightened by most countries, but the repercussions of this step are different. For example, technology companies, which the United States is betting on, have declined due to higher interest rates than companies in the financial and commodity sectors, which focus on Europe.
In Europe, the Stoxx 600 index rose for four consecutive quarters and outperformed the US S&P 500 index throughout the year. This is the best performance for the European index since 2008.
As for the interest in Asian financial stocks, it is linked to expectations of a rapid recovery of the Chinese economy after exiting the quarantine. “China and other Asian countries are now becoming a magnet for investors,” analyst Sergey Suferov said. “According to official estimates, the Chinese economy will grow by 5 percent this year. In addition, there are many attractive shares in the Chinese financial market.”
While the US is expected to grow by only 1% or even enter recession in the negative scenario.
For her part, economist Natalia Malekh believes that the interest rate differential works in favor of China, as the Chinese regulator maintains key interest rates at low levels, unlike the United States.
This article was originally published by RT.