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Welcome to Thoughts on the Market. I'm Serena Tang, Morgan Stanley's Chief Cross Asset Strategist. Today, is the demand for U.S. assets declining? Let's look at the recent trends in global investment flows. It's Wednesday, July 9th at 1pm in New York. The U.S. equity market has reached an all time high, but at the same time, lingering uncertainty about U.S. trade and tariff policies is forcing global investors to consider the riskiness of U.S. assets. And so the big question we need to ask is are investors, particularly foreign investors, fleeing U.S. assets? This question comes from recent data around fund flows to global equities and we have to acknowledge that demand for U.S. stocks overall has declined going by high frequency data. But at the same time we think this idea is exaggerated. So why is that? As many listeners know, fund flows, which represent the net movement of money into and out of various investment vehicles like mutual funds and ETFs, are an important gauge of investor sentiment and market trends. So what are fund flows really telling us about investor sentiment towards US Equities? It would be nice to get an unequivocal answer, but of course the devil is always in the details. And the problem is that different data sources and frequencies across different market segments don't always lead to the same conclusions. Weekly data across global equity, ETF and mutual funds from Lipper show that international investors were net buyers through most of April and May, but the pace of buying has slowed year to date versus 2024. Still it remains much higher than during the same period in 2021 through 2023. Treasury TIC data point to something similar a slowdown in foreign demand but not significant net selling. So where are the flows going if not to the US they are going to the rest of the world. But more particularly Europe's stocks in fact have been the biggest beneficiary of decreasing flows to the US nearly US$37 billion has gone into Europe focused equity funds year to date. This is significantly higher than the run rates over the prior five years. What's more notable here is that year to date flows to European focused ETFs and mutual funds dominated those targeting Japan and emerging markets. This suggests that Europe is now the premier destination for equity fund flows with very little demand spillovers to other region equity markets. These shifts have yet to show up in the allocation data which tracks how global asset managers invest in stocks. Regionally. Global equity funds portfolio weights to rest of the world has gone up by roughly the same amount as allocation to the US has come down, but allocation to the US has actually gone down by roughly the same amount as its share in global equity indices. Which means that if allocation to the US has changed, it's simply because the US Is now a smaller part of equity indices. Meanwhile, an estimated US$9 billion from rest of the world went into international equity funds, which exclude US Stocks altogether. Granted, it's not a lot, but scaled for fund assets, it's the highest net flows international equities have seen. In other words, some investors are choosing to invest in equities excluding US altogether. These trends are unlikely to reverse as long as lingering policy uncertainty dampens demand for US based assets. But as we've argued in our mid year outlook, there are very few alternative markets to the US dollar markets right now. US stocks might start to see less marginal flows from foreign investors to the benefit of rest of the world equ, especially Europe. But demand is unlikely to dry up completely over the next 12 months. Thanks for listening. If you enjoy the show, please leave us A review wherever you listen and share thoughts on the market with a friend or colleague today.