The threat that foreigners could dump U.S. assets -- or "Sell America" -- has loomed over markets since President Trump returned to office last year and upended the world order.
The slide in the dollar to multiyear lows is the clearest sign that foreigners are nervous about the U.S., where they have invested $36 trillion into stocks and long-term bonds. Foreign purchases of U.S. Treasurys have slowed, and some investors, like European pension funds, have turned to sellers.
But U.S. stocks remain an outlier, continuing to draw money from overseas and helping indexes weather jitters related to artificial intelligence.
The result is a halfhearted "Sell America" trade that reflects a desire to hedge U.S. exposure rather than eliminate it. Still, as investors across Europe and Asia dial back some U.S. investments, it is throwing into question the country's dominance in global markets -- a position that has allowed Washington to borrow more cheaply, made everyday investors rich and funded U.S. companies.
"It's going to be a glacial, tectonic thing but it will be a thing," said Anders Schelde, chief investment officer of the Danish pension fund AkademikerPension. "If we allocate more to Europe over the next 10 years, we will by definition allocate less to the rest of the world, including the U.S."
Dollar decline
The dollar has slumped about 8% over the past year. That came despite a number of factors that should support the currency: a roaring U.S. stock market, the economy's strength and higher interest rates in the U.S. than in much of the developed world.
John Sidawi, a senior portfolio manager at Federated Hermes, said this mismatch shows investors still want to hold U.S. assets but have grown less comfortable with the added risk of holding the currency.
"It's not selling America -- it's hedge America," he said.
Hedging the currency, through derivatives markets, can be an easier and cheaper way to bring down U.S. exposure than selling stocks or bonds. But it can also become a self-reinforcing cycle: Hedging involves selling the dollar, weighing on the price.
Many foreign investors went into last year heavily exposed to dollar swings. The currency's run-up over the past decade led many investors to conclude it wasn't worth the cost of hedging.
When the dollar was rising, it boosted foreign investors' returns on the U.S. stocks and bonds they owned when they converted their profits back into home currencies. And when stocks were hit by volatility, the dollar often gained because of its role of a safe haven, offsetting losses.
"It was such a no-brainer," said Andreas Koenig, global head of foreign-exchange at Amundi, Europe's largest asset manager. "You have the dollar in your portfolio, and it always saves you anytime something bad happens. It was just too good to not have it."
The decline in the dollar last year changed the calculus for investors. Danish pension funds and life insurers raised their U.S. dollar hedging ratio s -- or the portion of their dollar-denominated assets protected against currency swings -- to 71% at the end of last year, from 61% at the start, according to data from the country's central bank.
Analysts expect more foreign investors to do the same this year. Heavyweights, like Japanese and Taiwanese life insurers, are still hedging relatively little dollar exposure and even minor shifts could be a big drag on the currency.
Threats to Treasurys
Trump's January pursuit of Greenland, a semiautonomous territory of Denmark, fueled speculation that foreign investors could "weaponize" -- or band together to sell -- U.S. assets.
Foreign holdings of Treasurys hit a record $9.4 trillion in November, but the pace of buying has slowed to $422 billion in the year through November from $641 billion a year earlier. Some foreign central banks and investors, particularly in Northern Europe, have become outright sellers.
AkademikerPension, a small pension for Danish high-school teachers and other public-sector workers, became the face of "Sell America" fears in January after announcing it would unload $100 million in U.S. Treasurys.
"We were stunned," said Schelde, the fund's investment chief, about the attention the move received. "It was not such a big decision or anything. It was more daily business."
Schelde said the choice was driven by concerns about rising U.S. deficits and debt levels, not Washington's position on Greenland. It also has sold U.S. corporate bonds in recent months.
Denmark's largest commercial pension fund, PFA, has also ditched U.S. Treasurys, which used to make up about 30% of its government bond portfolio. Chief Investment Officer Kasper Ahrndt Lorenzen said the fund has been selling them for years after deciding it was more sensible to invest in bonds in its own currency.
But the fund still invests a large part of its portfolio in U.S. stocks, and speculation that the Trump administration could target a weaker dollar led Lorenzen to ramp up currency hedging last year.
"We were reminded, hey, we own a lot of U.S. assets," he said.
Bigger questions hang over Japan and China -- two of the largest lenders to Washington. Rising interest rates in Japan could encourage investors to start bringing home some of the trillions of dollars they have invested overseas.
On paper, China's U.S. Treasury holdings have fallen to their lowest level since 2008. But its real investments could be over $1 trillion, according to Brad Setser, senior fellow at the Council on Foreign Relations.
He said China has shifted to using offshore intermediaries in places like Belgium and state banks to buy Treasurys, obscuring its real exposure. Setser said he believes that state banks have been buying U.S. Treasurys lately as part of an effort to slow the appreciation of China's currency -- selling yuan and buying dollars -- a trend he expects to continue.
Stocks keep rallying
Foreigners' appetite for U.S. stocks wasn't rattled last year by the White House's policies. Foreigners bought $689 billion in stocks in the year through November, according to U.S. Treasury Department data, up sharply from $197 billion the year before.
"Last year, clients were telling me, 'I can't go to my board and say I want to reduce U.S. stock allocations,' said Vincent Mortier, chief investment officer of Amundi. "You needed to be very brave."
Now, global markets are outpacing the U.S., and investors are starting to question whether it is time to invest less in America. Such decisions take time. Many investors use global indexes dominated by the U.S. as benchmarks, and making big changes can require reviews or board approvals.
"We cannot just sell out of the AI companies," said Nicolai Tangen, who runs Norway's $2.1 trillion sovereign-wealth fund, when asked about its U.S. tech exposure in January. "We do not have that kind of risk budget."
An advisory panel recently raised concerns about its U.S. concentration and questioned whether the fund -- whose investments must largely align with benchmarks chosen by the Norwegian government -- should be given more room to maneuver.
For Schelde, of Denmark's AkademikerPension, the geopolitical upheaval has him considering bigger changes, such as investing more in homegrown sectors like defense. Still, he thinks the U.S. is likely to remain one of its biggest investments.
"The only reason why we exist is to provide good pensions to our members, and I can't see that you can do that without investing in the U.S.," he said.