Growing Uncertainty Around U.S. Assets: Investor Confidence Put to the Test
U.S. financial markets have entered a fragile phase, as several recent policies moves by the Trump administration have begun to stir the investor confidence. Rising trade tensions, proposed tax changes targeting foreign investors, and a weakening dollar have together raised concerns about the U. S’s appeal as an investment destination. At the same time, there is an occurring shift in capital from the U.S. to European assets.
New Tariffs Add to Geopolitical Tensions
President Trump’s decision to double the tariffs on steel and aluminum import to 50% marks a new escalation in the ongoing trade conflict. China has clearly rejected the accusations of violating previous trade agreements, while the European Commission has “deeply regretted” the decision and is preparing countermeasures.
The announcement has already impacted the markets. The dollar weakened immediately, reflecting reduced confidence among international investors. Commodities markets also reacted strongly - particularly industrial metal, where price volatility has notably increased.
New Tax Threatens Foreign Investment
A new budget proposal currently being debated in the U.S. Congress includes a controversial tax on passive income from foreign investors. The so-called “Section 899” rule would impose a progressive tax of up to 20” on dividends, royalties, and interest payments to investors residing in the countries the U.S. considers having unfair tax practices.
Several analysts from major banks are warning that this could have long-term effects on demand for U.S, government bonds. In the longer term, it might push interest rates higher and make it harder for the U.S. to finance its growing budget deficit.
Capital Flows Turning Away from the U.S.
Recent data from Refinitiv Lipper shows that U.S. equity funds saw outflows of 5.46 billion during the week ending May 28. This marks the second consecutive week of net outflows from U.S. stocks. Meanwhile, European equity funds reported inflows, signaling a shift in investor sentiment
It is not only equities that are being affected. The U.S. bond market is showing strain, with rising Treasury yields and a flatter yield curve. Investors are increasingly turning to alternative safe haven, with European government bonds gaining popularity.
Lower Confidence, Higher Risk
The rising political risk in the U.S. combined with direct regulatory threats to international capital, is creating a complex and challenging environment for global investors. However, at the same time, it is worth remembering that uncertainty can also present opportunities, for both the long and short investor.
Risks
Credit risk of the issuer:
Investors in the products are exposed to the risk that the Issuer or the Guarantor may not be able to meet its obligations under the products. A total loss of the invested capital is possible. The products are not subject to any deposit protection.
Currency risk:
If the product currency differs from the currency of the underlying asset, the value of a product will also depend on the exchange rate between the respective currencies. As a result, the value of a product can fluctuate significantly.
Market risk:
The value of the products can fall significantly below the purchase price due to changes in market factors, especially if the value of the underlying asset falls. The products are not capital-protected
Product costs:
Product and possible financing costs reduce the value of the products.
Risk with leverage products:
Due to the leverage effect, there is an increased risk of loss (risk of total loss) with leverage products, e.g. Bull & Bear Certificates, Warrants and Mini Futures.
Disclaimer:
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