Transatlantic Fracture: European Capital Flight Emerges as Key Risk to Wall Street

A structural shift in global capital flows is underway as escalating protectionist rhetoric threatens ties between Washington and Europe. Financial powerhouses warn of a buyers strike from investors holding a staggering $10.4 trillion in US equities.

The 'Decoupling' Threat

Analysts note this is bleeding into asset allocation. Vincent Mortier, CIO of Amundi SA, confirmed that demand to diversify away from US exposure began in April 2025 and has accelerated.

• The weaponization of the US Dollar is forcing European institutions to reconsider reliance on US markets.
• Similar moves were observed in Canada last year, with pension funds reducing exposure.

Market Vulnerability & Data Snapshot

Valuations are stretched as US indices significantly outperformed peers like the Stoxx 600.

• Exposure Risk: European ownership share of foreign-held US stocks stands at 49%.
• Currency Impact: Scotiabank warns unwinding would pressure the Greenback (USD) and Treasury yields.
• Diversification: Tikehau Capital advises shifting to Asian and European assets.

Geopolitics Meets Finance

The dispute highlights a breakdown in market norms. Lars Christensen of Paice notes this is now a matter of fiduciary prudence.

For Forex traders, the exceptionalism trade risks unwinding if structural flows dry up. Watch EUR/USD for sensitivity to trade headlines in coming weeks.