Investors Favor International Stocks Over U.S. Amid Trade War Concerns

Investors are increasingly turning their attention away from the U.S. stock market, with a recent survey by a major global bank revealing a significant shift in sentiment. The survey, which polled fund managers, found that over half of the respondents believe that international stocks will outperform U.S. stocks over the next five years. This marks a departure from the historical trend where the U.S. market has been the preferred choice for many investors.

The survey, conducted between June 6 and June 12, showed that 54% of the fund managers surveyed expect international stocks to be the best-performing asset class over the next five years. In contrast, only 23% of the respondents believed that U.S. stocks would be the top performers, while 18% favored assets such as gold, government bonds, or corporate bonds.

The shift in sentiment comes amid concerns over the impact of trade wars on the American economy. Nearly half of the fund managers surveyed, 47%, identified the potential for a global recession triggered by trade wars as the biggest "tail risk" facing the market. This concern has been consistently highlighted as the primary risk for the past three months.

Other significant tail risks identified by investors include the possibility of the Federal Reserve raising interest rates to combat inflation and the potential for disorderly increases in U.S. Treasury yields, which could lead to credit issues. Despite these concerns, the survey also indicated a slight improvement in investor sentiment compared to previous months. The sentiment index, which tracks investor growth expectations, cash levels, and stock allocations, rose to 5.4 in June, the highest level since the so-called "liberation day" in April.

The survey also revealed that 66% of the respondents believe that the global economy will avoid a recession and achieve a soft landing over the next 12 months. This is a significant increase from the 37% who held this view in the April survey. The improved sentiment suggests that while investors remain cautious, they are not overly pessimistic about the future economic outlook.

The survey's findings highlight a growing optimism among investors regarding the prospects of international stock markets. This shift in sentiment is likely driven by a combination of factors, including concerns over the impact of trade wars on the U.S. economy and the potential for higher interest rates and inflation. As a result, investors are increasingly looking beyond the U.S. market for opportunities, reflecting a broader trend of diversification in global investment portfolios.