The global appetite for US stocks is on the rise, defying the notion that foreign investors are losing interest. Despite the US equity market's performance lagging behind major European and Asian markets this year, overseas private sector inflows into US stocks have surged to record levels and continue to accelerate. The latest Treasury International Capital data reveals that foreign private sector investors purchased a staggering $646.7 billion worth of US stocks in the 12 months ending September, surpassing the previous peak of $392 billion from 2021. This trend is further fueled by the artificial intelligence frenzy, with net foreign purchases exceeding $100 billion in three of the past five months. The influx of foreign capital into Wall Street has contributed significantly to the overall $1.59 trillion net inflow into US assets, making it the largest foreign flow into any single US asset class. The weak dollar has also played a role, boosting returns in non-US markets, with the MSCI Asia ex-Japan index and Germany's DAX both outperforming the S&P 500 by nearly 25% and 20%, respectively. However, the question remains whether this demand can be sustained in 2026, as investors grapple with concerns about US stock valuations, earnings robustness, and the potential AI bubble. The US equity premium over international stocks is currently 34%, significantly higher than the long-run average, and the US share of global equity market cap has reached 65%. As the market dynamics evolve, investors are left to ponder the allocation of their next marginal dollar, with the potential for a correction or relative underperformance on the horizon.
