Net inflows into exchange-traded equity funds (ETFs) investing in Asia totalled US$8.45 billion in the three weeks to May 7, the highest in about seven months.

At the same time, U.S. equity funds saw outflows for the fourth consecutive week, totaling $43.5 billion as of May 7.

The Trump administration's tariffs are a key factor in the erosion of investor confidence. Investors are increasingly concerned about the outlook for U.S. economic growth, and they are beginning to reassess the long-term return potential of the U.S. market.

Asian markets outperformed U.S. stocks

Let's start with a set of data comparisons: MSCI's Asia-Pacific stock index excluding Japan is up more than 4% this year; In contrast, the US market has not fared so well – the S&P 500 has fallen nearly 4%, while the Nasdaq has fallen about 7%.

Not only that, but there are differences in valuation: the Malaysian benchmark index has a 1-year forward price-to-earnings (PE) ratio of 17.56, while the S&P 500 has a price-to-earnings ratio of 20.62. That said, Asian markets are more attractive due to their relatively low valuations.

BNP Prashant, Chief Investment Officer at Paribas Wealth Management Bhayani noted: "There is a growing awareness of the need for portfolio diversification and the need for 'Magnificent 7' concerns about over-concentration of stocks, which have driven capital flows to non-US markets, including Asia. ”

Here "Magnificent." "7" refers to the mega technology companies in the U.S. market, such as Apple, Microsoft, etc. While these companies have outperformed over the past few years, investors are also starting to worry about whether they are overly concentrated. As a result, many people choose to move some of their funds to other markets, especially the Asia-Pacific region, for better asset allocation.

Currency appreciation and trade deals are expected to increase attractiveness, and in addition to valuation advantages, currency appreciation is also an important factor in attracting foreign investment. Recently, the currencies of many Asian countries have appreciated against the US dollar, making the return on investment in the Asian market even more attractive.

In addition, investors also believe that Asian countries could reach new trade deals between each other or become beneficiaries of new trade routes that circumvent U.S. tariffs. This optimism further strengthens the attractiveness of the Asian market.

The current trend is as follows:

Asia-Pacific equities outperformed: Asia-Pacific stock indices have risen more than 4% year-to-date, while U.S. equities have fallen to varying degrees.

Valuations are more attractive: Asian markets are cheaper with lower P/E ratios than U.S. markets.

Increased need for diversification: Investors are looking to diversify their investments to reduce risk and reduce their appetite for "Magnificent." 7 "Reliance on such large tech stocks.

Currency appreciation and trade deal expectations: Currency appreciation combined with expectations of new trade deals has increased the attractiveness of Asian markets.

Goldman Sachs warned: U.S. stocks may face a nearly 20% downside risk

Goldman Sachs recently issued a bombshell warning: the US stock market could face a nearly 20% downside risk. The main reason? A recession is a huge threat to the stock market.

Looking at recent data, though, the S&P 500 has risen about 18% since its intraday low on April 7. If the rally continues over the next few days, the market could enter a technical bull market again (i.e. a bounce of more than 20% from the lows). This backlash has led many to think that the reaction to the potential disruption of Trump's trade war a month ago was a bit overdone.

In particular, after Trump announced the suspension of the 90-day tariff plan, the market's worries have been significantly eased. But the problem is that this is only a temporary "painkiller", and the fundamental problem has not been solved.

Although the market seems to be picking up, economists at Goldman Sachs are not carried away by the immediate rebound and remain very cautious.

1. Trump's trade policy remains a problem

Alec, chief political economist at Goldman Sachs Phillips noted that while there has been some easing of Trump's tariffs at the moment, Trump's comments on the UK-US trade deal suggest that many countries will eventually face higher tariffs than they did at the start of his second term. In other words, the risk of a trade war has not been completely eliminated, but has only temporarily pressed the "pause button".

2. Concerns of Goldman Sachs' chief economists

On Thursday's podcast "Standing on the Edge of Another Decline? Two heavyweights at Goldman Sachs, Chief Economist Jan Hatzius and Peter, Chief Global Equity Strategist Oppenheimer also expressed their caution.

Jan Hatzius believes that while market sentiment has improved in the short term, the risk of a recession remains in the long term. Peter Oppenheimer cautioned investors that the current rally is likely to be short-lived and that the market may soon come under pressure again.

The only substantial buyers are retail investors

Goldman Sachs macro trader Bobby To some extent, Molavi said, the world has changed. But from another perspective, we're back to square one. If January and February are times of hope, anticipation and conceit, March and April are times of despair, disappointment and anxiety. After a series of policy back-and-forths, news bombardment and market volatility, the stock market is almost back to where it was at the beginning of the year.

The main beneficiaries of this sell-off and rally are the only "dip buyers" we really see – retail investors. Retail and corporate buybacks are buying an average of around $1 trillion per year, providing support for U.S. stocks in the context of scarce new stock issuances.

Don't underestimate "retail investors", sometimes they are the real "stabilizer" of the market.

Are U.S. assets really abandoned? Some people say that U.S. assets are being sold off globally, especially the triple kill of stocks and bonds. But Molavi reminds us that this "selling" narrative may be exaggerated.

While it is true that there are net outflows and selling across asset classes, it is important to know that the US remains one of the most attractive capital havens in the world; Some investors did turn to Europe, India, Japan and other places for rebalancing; However, after this adjustment broke out in April, it has begun to cool down in May, with the average daily trading volume falling significantly, and the market gradually returning to its normal rhythm.

In other words, not "escape", but more like "come back for tea after a short stay".

Interestingly, while the overall savings rate of US households is falling, their stocks are increasing and their cash reserves are gradually flowing into the market. However, Molavi also mentioned a potential risk: there is a general anxiety among senior executives and uncertainty about the future of the economy. Coupled with the expectation that AI technology will improve efficiency, many companies may reduce the need for hiring, or even start preventive layoffs in advance.

Once the job market deteriorates and the unemployment rate rises from the current 4% to 7%-8%, the situation will not be the same. Because at that time, the stocks held by ordinary households and retirement accounts are likely to change from "continuous buying" to "forced selling", which will suddenly turn the factors that drove the market up into a drag.