The belief in America as an exceptional and unrivaled force on the global stage may have waned in political and diplomatic discussions. However, in the investing world, the idea of “American exceptionalism” is experiencing a fiery resurgence, with international investors pouring unprecedented amounts of capital into US markets.
Ruchir Sharma, chair of Rockefeller International, warns in a Financial Times article that this trend is dangerously inflating a bubble in US financial markets. United by a shared conviction that the US will continue to outperform global economies, investors are now committing to American assets at levels never seen before in modern history.
A Rising Giant
The US currently accounts for nearly 70% of the leading global stock index, a remarkable leap from just 30% in the 1980s. Moreover, the US dollar is at its highest level in 50 years since the abandonment of fixed exchange rates. Sharma notes that this dominance is driven by faith in:
- The earnings power of top US companies.
- Their global reach.
- Leadership in tech innovation.
While these strengths are undeniable, Sharma cautions that the overwhelming confidence in US markets has “gone too far,” creating conditions ripe for what he calls the “mother of all bubbles.”
A Disparity That Signals Trouble
The US share of global stock markets far exceeds its 27% share of the global economy. Investors are increasingly treating America as the sole viable market for their portfolios. Sharma highlights this stark disparity by describing how, across Asia and Europe, financial advisors and wealth managers are urging clients to prioritize American investments, often at the expense of other markets.
In Singapore, for example, not a single wealth manager at a recent event refrained from owning shares of Nvidia. Similarly, in Mumbai, financial advisors encouraged their clients to diversify into America’s already-expensive markets, ignoring opportunities closer to home.
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Bigger Than the Dot-Com Bubble
While US markets were highly overvalued during the dot-com bubble of 2000, the current scenario presents an even larger gap between the US and the rest of the world. Sharma notes that the US market now outperforms its global counterparts by more than four to one since 2009, even when excluding the influence of Big Tech.
The premium on US markets compared to regions like Europe and Japan is partly rational—the US economy is growing faster than those of its peers. However, Sharma points out that it is slower than many developing economies, making the outsized valuation difficult to justify.
A Global Fallout
The dominance of US markets is not just a domestic phenomenon—it is actively reshaping the global investment landscape. Historically, during eras such as the roaring 1920s or the dot-com boom, a rising US market would lift other global markets. Today, however, a booming US market is “sucking money out of the others,” Sharma argues.
The outflow of capital from smaller economies weakens their currencies, forces central banks to raise interest rates, and slows economic growth. This negative cycle reinforces the belief that these markets are inherently weaker, further widening the gap.
The Bigger Picture
While US outperformance might feel inevitable, Sharma cautions against ignoring the risks. He argues that sentiment has overtaken fundamentals in driving prices. The inflows of foreign capital into US debt markets—an annualized $1 trillion this year, nearly double the Eurozone’s—underscore this trend.
A Bubble Waiting to Burst?
Sharma concludes with a sobering warning: when sentiment pushes markets to such extremes, a correction becomes almost inevitable. He writes, “Thoroughly dominating the mind space of global investors, America is over-owned, overvalued, and overhyped to a degree never seen before.”
The exact timing of a potential downturn or its trigger remains uncertain. However, history shows that bubbles don’t last forever.
What’s Next?
For investors, Sharma’s analysis serves as a wake-up call to reassess the balance in their portfolios. Diversifying beyond US markets and looking at undervalued regions may not only mitigate risks but also unlock untapped growth opportunities.
As Sharma teases possible scenarios for this bubble’s decline in his next column, the key takeaway is clear: no bubble grows indefinitely, and the US market is no exception.