Synopsis:
Goldman Sachs notes that foreign flows into US assets are shifting, with European investors leading equity repatriation and foreign demand tilting toward short-duration bonds. While positioning hasn't yet unwound significantly, US policy-induced uncertainty is expected to erode the USD’s structural premium.
Key Points:
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Equity Flows:
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European investors are repatriating capital from US equities into European stocks.
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However, non-European investors are still net buyers of US equities, maintaining some cushion for the USD.
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Fixed Income Flows:
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Private investors continue to purchase US Treasuries, but are shifting to shorter durations.
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Meanwhile, US credit products are seeing net selling.
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Positioning & Sentiment:
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Despite shifts, there’s been no material erosion in aggregate foreign positioning in US assets—yet.
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Goldman’s bearish USD call is based on a structural reallocation of future flows, rather than an abrupt unwind.
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Conclusion:
Goldman sees a transition from USD exceptionalism to a more balanced global allocation environment. The Dollar’s premium—sustained for over a decade by superior returns—is fading as uncertainty from tariffs and fiscal policy weighs on investor confidence. This sets the stage for gradual USD depreciation, driven by flow rotation rather than capital flight.
