Scramble for alternatives to Wall St finally underway: Mike Dolan

Global investors finally appear to be doubting the wisdom of keeping all their eggs in one basket. A decade of exceptional U.S. investment returns may therefore be cresting just as Donald Trump's "America First" programme returns to Washington.Trillions of dollars of capital has flooded U.S. markets in recent years. But stretched valuation gaps and the radical upheavals of Trump's new administration have caused some of this to start reversing barely over a month into his tenure.Multiple narratives are now unfolding to explain this switch and counter the long-held fixture of U.S. investment "exceptionalism".The most obvious of these is lifting gloom in Europe, a major source of the investment flows that have pushed U.S. markets ever higher in recent years. Catalysts for the rethink include a forced retooling of Europe's defense sector, the prospect of an end to the Ukraine war, a potential economic recovery in China, and hopes of looser fiscal policy in Germany after this weekend's election.The European Central Bank is also continuing to ease credit conditions even as the U.S. Federal Reserve appears to be turning more hawkish.And then there's the fact that European and German stocks are trading at an almost 40% discount to their U.S. counterparts. That's clearly tempting investors. SURVEY SWITCHThis dramatic rebalancing of Transatlantic equity positioning is best captured by Bank of America's closely-watched monthly survey of global money managers.While investors remain overweight U.S. stocks, this positioning has been pared back sharply from record levels hit in December - falling by a net 20 percentage points since the start of the year.Somewhat disconcertingly, nearly 90% of investors polled think U.S. equity is overvalued - the highest in the history of the survey started in the throes of the dot.com bust of 2000/2001.Funds identified the three "most crowded" trades on the planet as long positions in U.S. tech megacaps, the dollar and crypto markets - in other words, the American "exceptionalism" trifecta. Simultaneously, allocations to euro zone equity recorded the biggest one-month jump in 25 years in January and then rose a further 11 points in February.It's notable that the overall positioning in European stocks remains below the 20-year average even after the gigantic shift of the past two months, illustrating just how extreme the negative narrative about Europe had become. This may well indicate that there's a lot more room for nervy European investors to bring money home.WALKING THE TALKActual fund flow data supports the idea that capital is being pulled back across the Atlantic.Mutual funds tracked by EPFR show that the second week in February saw net U.S. equity fund redemptions for the first time this year. That's only the ninth weekly outflow in 12 months. U.S. growth funds have seen five straight weeks of outflows.European equity funds, by contrast, recorded their first net inflow since September and the biggest in almost two years.Whose money is moving where? BofA's sister survey of European asset managers and other indicators strongly suggest at least some repatriation of European money, showing a net 45% of funds in that survey expect European growth to accelerate over the next 12 months - compared with just 9% last month. Echoing that, the ZEW economic research institute on Tuesday said German investor morale improved twice as fast as forecast this month.And economic surprise indicators compiled by Citi show the real euro zone economic numbers matching revived market optimism — hitting its most positive in eight months while U.S. equivalents flirt with negative territory.SURPRISING SWAPMarket prices have moved to reflect some of this shift in sentiment. The 13% rise in European stocks (.STOXXE) in dollar terms this year is four times the once "go go" U.S. tech vanguard of the Nasdaq . And tech sector buzz and artificial intelligence excitement so critical to Wall Street's leadership in recent years also seems to be seeping elsewhere.Hong Kong's tech leaders have gained more than 26% this year so far, largely thanks to the DeepSeek AI revelation last month and encouraged by Chinese President Xi Jinping's public embrace of entrepreneurs in the sector this week.The unraveling U.S. exceptionalism theme has dragged the dollar marginally lower this year - made more remarkable given the assumption that tariff threats and elevated U.S. interest rates would do the opposite and spur it higher.A big question now is whether this all marks the beginning of a more seismic reversal of world capital from expensive America or whether letting the air out slowly from what some feared was a bubble may be best for everyone.But even if resolution is benign, we may have seen the high watermark of a decade of "America first" investment trends.The opinions expressed here are those of the author, a columnist for Reuters