Despite improving risk appetite into year-end, investors have used the rebound to scale back exposure to previously top-performing equity markets, with US portfolio weightings falling notably from early-year peaks, BNY’s economists report.
Emerging markets gain share
“Despite the general recovery in risk appetite toward year end, our data indicate that investors have used the recovery flow as an opportunity to reduce their equity exposures to previously high-performing markets. Compared to the highs seen at the start of the year – when ‘U.S. exceptionalism’ was the consensus view – U.S. positioning at the end of 2025 is more cautious, with its share in global portfolios falling from a high of 68% to just above 64%.”
“For Europe, the strongest period of performance was in late Q1 and early Q2, when a combination of tactical diversification away from the dollar after ‘Liberation Day’ tariffs and the local defense theme pushed holdings to more than 11% of all portfolios. However, this figure has also softened, though it remains above the sub-10% level seen at the start of the year. This suggests that markets still support the European reinvestment theme, though with less conviction than earlier in the year.”
“As both U.S. and Eurozone markets end the year near the lower end of recent ranges, emerging markets have picked up some of the slack. We expect this momentum to continue into 2026, as total positioning remains very light in absolute terms, and a significant uplift in exposures would not necessarily come at the expense of developed markets. Whether this translates into FX gains is another matter, as yield differentials continue to favor high hedge ratios. Export competitiveness pressures may also limit appreciation potential.”
Source: https://www.fxstreet.com/news/investors-trim-us-equity-exposure-into-year-end-bny-202512301412
