Foreign investors are showing a growing preference for U.S. equities, with net equity inflows reaching a record $600 billion in the year leading up to March 2026, surpassing investments in U.S. government bonds by the largest margin in history. Deutsche Bank's George Saravelos noted that the share of U.S. Treasuries held by overseas investors has dropped from over 50% to about 30%.
This decline is attributed to a booming private sector driven by advancements in AI and high profit margins, contrasted with a deteriorating public sector balance sheet, which is facing persistent deficits exceeding 6% of GDP. The U.S. national debt has surpassed $40 trillion, and the federal budget deficit is projected to reach approximately $2.1 trillion for the fiscal year ending September 30.
Major investors, including Norges Bank Investment Management, are reconsidering their allocations, with proposals to reduce U.S. Treasuries in their portfolios.
Meanwhile, firms like BlackRock are overweight on U.S. equities, citing strong corporate earnings and a favorable macroeconomic environment, while advising caution on long-duration bonds, which are viewed as less reliable in the current economic climate