UBS warns $14tn in U.S. assets is at risk amid fading exceptionalism

Investing.com -- UBS analysts warned in a note Friday that “fading US exceptionalism” could put “~$14tn of unhedged US assets at risk.”

The bank cited multiple factors, including challenges to U.S. tech and AI leadership from China, diminished growth expectations due to tariff uncertainty and fiscal tightening, and renewed European economic momentum.

“All of these developments arguably challenge US asset overweights that had been built up during more than a decade of US growth and asset return outperformance,” UBS wrote.

This shift could lead to “asset unwinds and USD sales of significant magnitudes.”

UBS highlights that foreign ownership of U.S. assets is increasingly dominated by private investors rather than central banks, making holdings “less ‘sticky’ and more sensitive to diminished US exceptionalism.”

European investors, in particular, have raised their exposure to U.S. equities, making the dollar more vulnerable to U.S. market underperformance.

Applying “typical FX hedge ratios,” UBS estimates that net unhedged U.S. asset exposure for G10 foreign investors stands at $13.7tn—$9.8tn in equities and $3.9tn in fixed income.

The bank adds that a 5% reduction in these positions would translate into nearly $700bn in USD sales, an amount “comparable with around two-thirds of the annual US current account deficit.”

The firm sees multiple risks for U.S. markets. “US fiscal policy is turning tighter at a time when tariff uncertainty appears to be weighing on consumer and business sentiment,” they wrote.

Meanwhile, “European equities are outperforming by historic margins” and “prospects for additional joint European borrowing” are enhancing the euro’s appeal as a reserve currency.

UBS acknowledges uncertainty but emphasizes that understanding the “magnitude of potential asset shift helps frame the discussion of likely USD impacts.”

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