ORLANDO, Florida - Given the outperformance of many major European and Asian equity markets over Wall Street this year, it might appear that foreign investors are turning sour on U.S. equities.

But that's not the case. Not only are overseas private sector inflows into U.S. stocks running at record levels, they have re-accelerated in recent months. The big question now is whether this can be sustained next year.

The latest official Treasury International Capital data - which comes with a lag but is the gold standard for measuring overseas appetite for U.S. assets - shows that net purchases of U.S. stocks from foreign private sector investors in the 12 months through September totaled $646.7 billion.

Indeed, TIC data shows that inflows from abroad have been breaking records by this measure almost every month this year, having smashed through the previous peak of $392 billion, from 2021, in January.

RE-ACCELERATING INFLOWS

That rolling 12-month figure is partially boosted by strong inflows around the 2024 U.S. Presidential election. Monthly net purchases of U.S. stocks from foreign private sector investors rarely exceed $100 billion, but they did in September and November last year as investors hoovered up stocks in the belief that an incoming Trump administration would pursue an unabashedly pro-growth, "market-friendly" agenda of slashing taxes and regulation.

That initial wave of bullish optimism faded early this year, however, and was quickly replaced by unease surrounding Trump's tariffs and protectionist trade policy.

But overseas demand for U.S. stocks didn't cool for long before the artificial intelligence frenzy brought it roaring back. Net foreign purchases have topped $100 billion in three of the past five months, and exceeded $90 billion in another.

The near $650 billion that overseas investors poured into Wall Street on a net basis in the year to September is around 40% of the net $1.59 trillion that flooded into U.S. assets in that time. It is the biggest foreign flow into any single U.S. asset class over the period - Treasuries drew in $493 billion, corporate bonds $319 billion, and agency debt $127.5 billion.

WEAK DOLLAR BOOSTS NON-U.S. RETURNS

In some ways, these inflows from abroad are unsurprising. The whole world has wanted in on the U.S.-led AI boom this year.

Yet other slices of capital flows paint a different picture, and many key stock markets around the world have matched or bettered Wall Street this year, especially since the post-"Liberation Day" lows in early April.

The S&P 500 may be up 15% in 2025 thus far, but the MSCI Asia ex-Japan index has increased nearly 25%, while both Germany's DAX and Britain's FTSE 100 are up almost 20%.

Importantly, gains in non-U.S. markets are in local currency, meaning in dollar terms they can be boosted even further thanks to the greenback's decline. Brazil's Bovespa is up 30% year-to-date, and up a further 20 percentage points in dollar terms.

All told, analysts at JP Morgan Asset Management estimated that international equities were outperforming their U.S. counterparts by 1,520 basis points in the year through mid-November, the biggest outperformance since 1993.

They estimate that the dollar is still 10% too expensive relative to "fair value" and reckon the U.S. equity premium over international stocks is 34%, substantially higher than the long-run average of 19%.

What's more, the U.S. share of global equity market cap has risen to as much as 65% by some measures. So foreign allocation to U.S. stocks is still extreme, even if more of the dollar exposure is now hedged.

CAN IT CONTINUE?

Where non-U.S. investors put their next marginal dollar could depend largely on the answers to three market-specific questions for 2026: Are U.S. stocks too expensive? Can U.S. earnings remain so robust? And is AI a bubble?

There are three months of 2025 TIC flows still to be released, and it remains to be seen how investors' sentiment has been affected by year-end profit-taking or the record-long U.S. government shutdown.

It's plausible that the all-too familiar fears over U.S. valuations, market concentration, and future returns on AI spending could force overseas investors to slow their purchases of U.S. equities. Wall Street would be vulnerable to outright correction, relative underperformance, or both.

But the available evidence shows that, despite all the U.S. economic, political and policy turbulence in 2025, foreign appetite for U.S. stocks has never been stronger.

(The opinions expressed here are those of the author, a columnist for Reuters)

Enjoying this column? Check out Reuters Open Interest (ROI), your essential source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn and X.

(By Jamie McGeever; Editing by Alex Richardson)