As US Exceptionalism Fades, Are Chinese and European Stock Markets the Promising Choices?

TradingKey - As domestic economic data in the U.S. begins to deteriorate, the impact of DeepSeek's technological prowess and the uncertainties surrounding European elections gradually recede. The U.S. stock market now faces tremendous internal and external pressures, with Wall Street actively seeking investment opportunities outside the United States.

The S&P 500 index increased by more than 20% in both 2023 and 2024. The FOMO sentiment and animal spirits have persisted for an unusually long time and with remarkable intensity. However, since Donald Trump returned to the White House, the performance of the S&P 500 index has been less than satisfactory.

After Trump took office, the S&P 500 index rose by 0.3%, while the Nasdaq Golden Dragon China Index soared by 18%, and the Stoxx Europe 600 index climbed by 5.8%.

According to the latest data from the American Association of Individual Investors, the 8-week moving average of bullish sentiment toward U.S. stocks has dropped to 33.9%, the lowest reading since November 2023.

The policies that Trump is set to roll out, such as tariffs and immigration restrictions, are among the main concerns of the market. Additionally, the high valuation of U.S. stocks is another reason investors are less willing to increase their bullish bets compared to before. With rising inflation expectations and the slowdown of economic growth indicators, the risk of "stagflation" has resurfaced.

Moreover, the 2024 financial report recently released by Berkshire Hathaway, the company owned by the renowned "Oracle of Omaha" Warren Buffett, showed that they held a cash reserve of $334.2 billion in Q4, reaching a historical high. Buffett's decision to continue holding cash has raised concerns, suggesting that there may be limited investment opportunities in highly valued stocks.

Barclays analysts have stated that although U.S. stocks remain at historical highs, there are growing doubts about the sustainability of “American Exceptionalism.”

The Fading Uncertainties in Europe

While the market closely monitors Trump's volatile policies, the European stock market has actually been quietly performing well for several consecutive days.

Citi pointed out that investors' positioning has shifted sharply toward Europe, with more optimism about Europe than the United States.

On the 24th, the preliminary results of the German election showed that the Social Democratic Party (SPD), to which the current Chancellor Olaf Scholz belongs, ranked third in the vote. Meanwhile, the CDU/CSU (Christian Democratic Union/Christian Social Union) led in voting, and Merz is expected to become the new Chancellor of Germany.

Some analysts have noted that, although the formation of a new government is still uncertain, this is at least slightly positive for the market.

The Surge of Revaluation of Chinese Assets

The launch of the DeepSeek model has given a boost to U.S. technology stocks. Over the past month, international investment banks such as Goldman Sachs and Morgan Stanley have successively expressed bullish views on Chinese assets.

Following the “Magnificent Seven” in the United States, the “Eleven Knights” in Europe, and the “Seven Samurai” in Japan, investors have started to pursue a new concept: the “Ten Giants” in China.

Recently, WisdomTree Investment strategists named ten Chinese companies as the "Top Ten Tech Giants": Alibaba, Tencent, Meituan, Xiaomi, BYD, JD.com, NetEase, Baidu, Geely, and SMIC. The institution claims that China's Top Ten Giants are competing with the "Mag 7" of the U.S.

UBS has also released a similar list of China's version of the “Magnificent Seven,” believing that Tencent, Alibaba, ByteDance, Huawei, BYD, Contemporary Amperex Technology Co., Ltd. (CATL), and JD.com will play a crucial role in the fourth global industrial revolution.

Experts from OCBC believe that as investors expect more economic stimulus measures to be introduced in China, there may be more upside for Hong Kong and Chinese markets.