The United States has long been considered the go-to destination for investors worldwide. It offers the world’s largest companies, the most liquid markets, and a solid legal framework to safeguard shareholder returns. In addition, the government’s involvement in the economy has always been somewhat limited. Plus, U.S. stocks have outperformed the rest of the world over the past decade, making it a haven for investors.
However, recent events have made some international investors question whether the United States is becoming uninvestable. For example, just last year, China was considered uninvestable due to its zero-Covid policy, a government crackdown on tech companies like Alibaba Group Holding and Tencent Holdings, and rising tensions between the U.S. and China, which made investing in the world’s second-largest economy increasingly risky.
With Russia’s dollar assets frozen and its banks’ limited access to the Swift system, holding dollars has become riskier for any country that might find itself on the opposing side. Moreover, the current debt-ceiling standoff also raises the possibility of a potential U.S. default, which could result in the country losing its AAA rating at one of the credit-rating firms.
Government meddling in the economy is no longer limited to China. For example, Florida Governor Ron DeSantis targeted Disney World’s sweet deals. At the same time, California halted a $54 million contract with Walgreens Boots Alliance after the company refused to provide abortion drugs in 21 states that had threatened to sue it.
Tech giants like Apple, Alphabet, and Meta Platforms face criticism from both the left and the right over antitrust issues and free speech. While government controls in the United States may be less centralized and more haphazard than China’s, it is still causing concern among investors.
The latest blow came from Switzerland, where Credit Suisse Group was under pressure, and the Swiss government orchestrated its acquisition by UBS Group for $3.3 billion in stock.
The bailout wiped out holders of unsecured debt known as AT1, even as equity holders were allowed to walk away with something, circumventing the rules. It raises questions about how far Western regulators will go in a crisis.
As a result, some foreign investors are starting to look outside the United States for investment opportunities. In January, foreign investors sold $36.6 billion of U.S. Treasuries, the fourth month of outflows over the past five.
While the actual dollar amount has risen 6.8% since the end of 2019, the percentage of U.S. government debt held by foreigners has fallen to 29.3%, from 39.2% at the end of 2019.
Investors in and outside the United States may want to consider investing in gold. According to the World Gold Council, central banks bought about $70 billion, or 1,136 metric tons of gold in 2022.
This reflects lower bond yields, the possibility that the Federal Reserve is approaching the end of its rate hikes, and risk-off sentiment since Silicon Valley Bank’s collapse. So as long as investors don’t start feeling too comfortable, gold could keep rising.
It may also be time for U.S. investors to look overseas for stocks. Over the past decade, the SPDR S&P 500 ETF has returned 12%, including reinvested dividends, easily outpacing the Vanguard FTSE All-World ex-US ETF, which returned just 4.1%.
However, this trend may shift as global and U.S. stocks tend to move in long cycles of out- and underperformance.
The rest of the world has lower exposure to technology and tech-related sectors, which tend to do better when interest rates are low, money is easy to come by, and growth stocks outperform.
