Deutsche Bank says foreign investors are pouring capital into the stock market, but they are taking precautions because they are bearish on the world’s reserve currency.
In a new report, the banking giant analyzed more than 500 foreign funds to gain insights into their trading activities in the US markets, according to Reuters.
Deutsche finds that more than 80% of inflows into US stocks and roughly half of bond investments are now dollar-hedged, indicating that foreign investors are shielding themselves from potential USD downside. The report also finds that a surge in dollar hedging began at the end of 2024, rising from close to 0% to as high as nearly 100%.
According to Deutsche, foreign investors are bullish on the US stock market, but they are bearish on the dollar.
Says George Saravelos, Deutsche’s global head of FX (foreign exchange) research,
“Foreigners may have returned to buying US assets… but they don’t want the dollar exposure that goes with it. For every hedged dollar asset that is bought, an equivalent amount of currency is sold to remove the FX risk.”
The significant rise in dollar hedging among foreign investors this year comes as the USD continues to struggle against other currencies. Data shows that the US dollar index (DXY), which tracks the performance of the USD against a basket of major currencies, is down over 10% year-to-date. In July, reports emerged showing that the DXY recorded its steepest first-half decline in over half a century, after dropping 10.8% in the first six months of 2025 – the worst since its 14.8% decline in the first half of 1973, back when Richard Nixon was the country’s president.
JPMorgan equity strategists say foreign investors are chasing the upside in US stocks despite lofty valuations, as opportunities abroad remain scarce.
“Most foreign investors continue to park their capital in the US for the long-term growth potential, shareholder-friendly corporates, pro-growth policies, and the AI story.”
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