NEW YORK CITY, New York: Investor confidence in U.S. markets is showing signs of strain as global funds redirect billions toward Europe and emerging economies amid concerns over rising American debt, fiscal uncertainty, and the economic impact of potential trade tariffs.

Data from LSEG Lipper shows that U.S.-based equity mutual funds and ETFs saw outflows of US$24.7 billion in May — the most significant monthly withdrawal in a year. At the same time, European equity funds gained $21 billion, pushing year-to-date inflows to $82.5 billion — a four-year high.

Emerging market equity ETFs also drew fresh capital, with 292 such funds reporting $3.6 billion in inflows last month and $11.1 billion so far this year.

Analysts point to several drivers behind the shift. The U.S. dollar has weakened, and a selloff in Treasury bonds has further damaged the safe-haven appeal of American assets. Meanwhile, optimism over economic stimulus and lower interest rates is bolstering confidence in European and Asian markets.

"Valuations were the initial draw, but sentiment has clearly shifted," said Michael Field, chief European market strategist at Morningstar. "With investors rattled by the U.S. administration's actions and worried about the potential drag on equity markets, this may mark the start of a medium-term trend."

Market performance reflects sentiment. Since the start of the year, the MSCI Europe index has climbed about 20 percent, while the MSCI Asia Pacific index is up 10 percent. In comparison, the MSCI United States index has gained just 2.7 percent.

Europe's gains are supported by the European Central Bank's rate cuts — its eighth reduction in a year came last week — and the German government's 1-trillion-euro investment plan aimed at revitalizing the region's economy. However, the ECB has also warned of growing trade risks, particularly with the United States.

Emerging markets, particularly in Asia and Latin America, are benefiting from stronger fundamentals and lower debt levels. As global instability drives a search for safe bets, some investors are turning to these regions for resilience.

"While Italy, France, and the UK face rising debt burdens, many Asian economies carry lighter fiscal loads, keeping bond yields stable and investor confidence intact," said Manish Raychaudhuri, founder and CEO of Emmer Capital Partners Ltd.

Latin America, meanwhile, is viewed as a relatively insulated region amid geopolitical tensions elsewhere. Asian economies, increasingly driven by domestic consumption, are also attracting sustained interest.

Valuations remain a key differentiator. The forward 12-month price-to-earnings ratio for the MSCI U.S. index stands at 20.4, compared with 13.5 for MSCI Europe and 14.2 for MSCI Asia Pacific. This suggests room for further capital rotation away from U.S. equities if investor caution persists.