Did Investors Escape to Europe in H1?

Global investors may have appeared to pivot toward Europe in the first half of 2025 amid rising U.S. policy uncertainty, but Deutsche Bank said in a recent note that the evidence of a true capital flight is limited.

The bank noted that U.S. stock markets underperformed their European counterparts and the dollar weakened sharply against the euro during the period, fuelling speculation that investors were reallocating funds out of the United States.

However, Deutsche Bank analysts said that “a closer look at financial accounts does not reveal a significant redirection of capital from the U.S. towards Europe so far.”

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The bank highlighted that while there was a slowdown in capital inflows to the U.S., across direct investment, portfolio investment and bank lending, “its scale was not unusual in a longer-term comparison and may not have been the prime reason for the divergence in asset prices.”

Instead, Deutsche Bank suggested that the dollar’s weakness was likely driven by “increased hedging of foreigners’ dollar positions” rather than large-scale shifts in capital.

The analysts added that whether such hedging flows eventually turn into real reallocation would depend on investors’ assessment of “U.S. policy uncertainty going forward, including institutional resilience, and on growth prospects both in Europe and the U.S.”

In other words, while Europe may have looked like a safe haven in early 2025, Deutsche Bank’s analysis suggests investors have not yet made a decisive move away from the U.S., at least not in the data.