Rebecca Patterson, until recently chief investment strategist at Bridgewater Associates, is sounding the alarm. She calls into question the credibility of U.S. markets for international investors. Patterson at a recent appearance on CNBC’s “Fast Money” to share that story. Investors are slowly but surely divesting from U.S. assets, and she thinks the realignment could have major consequences.
Patterson highlighted her discussions with participants at the recent World Bank and International Monetary Fund meetings in Washington, indicating a growing unease among foreign investors and policymakers. This change in corporate feeling comes from a much larger concern over the possible use of capital markets as weapons by the United States.
They are looking at a huge U.S. allocation that has built up over the last several years and saying, ‘maybe we should have a little bit less, just trim off the tops’ — basically, have a risk premium on U.S. assets because we have so much uncertainty, Patterson explained.
The strategist thinks that this reappraisal will trigger a worldwide stampede to dump U.S. assets. On the higher end, they estimate that total might go as high as $1.2 trillion. This $15 billion figure only represents ~2.3% of the total market cap of the S&P 500. Most importantly, it represents a huge pullback from U.S. financial markets. For context, as of June, foreign entities owned over $31 trillion in U.S. assets, so this anticipated sell-off would be significant.
Patterson wanted to underscore the fact that the capital flight wouldn’t happen overnight. She stated that “these investment committees will take months to think about things.” This extremely careful and deliberate process includes board approvals and detailed strategic plans long before rollout. She described the situation as a “slow bleed of support out of the U.S. markets,” suggesting that displaced investments may return to home markets or shift towards alternative opportunities like gold.
Patterson, too, is responding to that new reality. She announced that she would reduce her U.S. stock and bond holdings by 2%. “Pretend you’re the chief investment officer of a major overseas pension fund or sovereign wealth fund. I’m going to take 2% off my U.S. stocks, 2% off my U.S. bonds, a 4% shift,” she noted.
Patterson’s unique perspective is indicative of a larger macro structural recalibration happening globally among investors as they reconsider their risk exposure to U.S. markets. Geopolitical uncertainty paired with rising geopolitical factors is continuing to create unease from investors in the U.S. This growing trend signals the beginning of a new era of global capital flows.
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