Capital flees US tech as global value rotation gains steam

Foreign investors’ US equity allocation matches the 2000 tech bubble peak, while the DAX and Hang Seng climb and emerging market flows surge.

On March 18, 2025, the S&P 500 closed down 0.7%. The DAX rose 1.2%. European financials jumped 1.5%. Capital didn’t vanish — it moved. That single day captured what a growing number of analysts see as the start of a multiyear shift: money flowing out of overpriced US tech stocks and into cheaper markets and sectors around the world.

Otavio Costa, a macro investor at Crescat Capital, has been tracking this for years. He warned in February 2026 that US equity concentration had built “fragility beneath the surface.” By July 2026, his timeline reads like a playbook for the rotation already underway. “When positioning is one-sided,” he wrote, “it doesn’t take much to trigger rotation.”

He’s not alone. Data from the IMF and BIS shows foreign investors’ allocation to US stocks hit 64% of their global equity holdings in late 2025 — a level last seen in March 2000, just before the dot-com crash.

the concentration problem

Seven stocks — Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet, and Tesla — accounted for 34% of the S&P 500’s total return in the first half of 2026. That’s down from 42% in mid-2025, but still extreme by historical standards. The top 10 stocks now make up almost as much of the index as the bottom 350 combined.

This isn’t a sign of health. Costa calls it “a feature of fragile markets, not durable bull markets.” When a handful of mega-caps carry the entire index, any hiccup — a rate hike, a DOJ probe, a disappointing earnings call — can trigger a stampede.

And the trigger came in early 2026. The Fed kept rates at 5.5% longer than many expected. The 10-year yield climbed back above 4.8% by April. Growth stocks, especially long-duration tech with distant cash flows, took the hit. The Nasdaq Composite shed nearly 9% from its February high.

But the broader market didn’t crash. Money just rotated.

the rotation in motion

Look at sector flows for Q2 2026. According to EPFR Global, US equity funds saw $47 billion in net outflows. Meanwhile, European equity funds took in $23 billion. Emerging market funds drew $31 billion — the strongest quarter since Q1 2023.

The winners: energy, financials, real estate, and materials. The losers: technology, consumer discretionary, and communication services. This is exactly the pattern thedave2006 described on July 22: “a clear rotation out of growth areas and into value-oriented sectors like Energy, Financials, and Real Estate.”

Take the MSCI World Value Index. It returned +8.3% year-to-date through July 27, 2026. The MSCI World Growth Index returned -1.1%. That’s the largest value outperformance since the first nine months of 2022.

Real-world example: BP plc shares rose 12% in the first half of 2026. Shell rose 9%. Both trade at roughly 6x forward earnings, with dividend yields north of 4.5%. Meanwhile, a stock like CrowdStrike fell 15% in the same period despite beating revenue estimates. Multiple compression, not earnings failure, is driving the divergence.

where capital is flowing now

China surprised everyone. The Hang Seng Index hit a 27-month high in July 2026, up 21% year-to-date. The Shanghai Composite gained 14%. The catalysts: Beijing’s new stimulus package in April, a stabilization of property developer debt, and big tech earnings that beat depressed expectations.

Neil Borate, a financial journalist and founder of Actus Dei, made this point in March 2025 after a short US dip. He posted a one-year chart showing Hang Seng BeES — an ETF tracking Hong Kong stocks — beating the flat Indian market. “Does it mean you should invest everything in China? Of course not,” he wrote. “Does it mean you should look at multiple geographies as part of a diversified portfolio? Yes.”

India itself remains a magnet. The Nifty 50 has returned 18% annually for five years. But foreign inflows dipped in Q2 2026 as global allocators shifted some weight to cheaper markets. India still trades at a P/E of 23, near its decade average. Brazil’s Bovespa, by contrast, trades at 8.5x — a 60% discount.

Costa’s view: “This is not the time to try to be a hero in US stocks.” He sees the next decade favoring “emerging markets, metals and mining, energy, and commodities.” The data backs him. The S&P/TSX Composite (Canada, heavy on energy and mining) is up 9% in 2026. The FTSE 100, with its 18% energy and mining weight, is up 7%. The S&P 500? Up just 2.3%.

risks in the regime shift

Every rotation has its pitfalls. The move into value could reverse if the Fed cuts rates aggressively. Then growth stocks — especially AI infrastructure plays like Nvidia — could roar back. MarketVector’s Q2 thematic chart pack still showed AI infrastructure as a top theme, with the AI & Big Data Index up 17% in the first half of 2026.

But that index is already above its August 2024 high. The question is whether earnings can catch up to valuations. Meanwhile, emerging markets face currency risk, political instability, and China’s unresolved property crisis.

Still, the signal from capital flows is hard to ignore. Money moves slowly at first, then all at once. The foreign allocation to US equities, the crowded tech positions, and the widening valuation gap between US and rest-of-world — these factors create what Costa calls “one of the most extreme rebalances of capital away from the US and towards the rest of the world.”

The DAX and Hang Seng are already telling that story. It’s early, but the exit doors are open.