(Bloomberg) — To some investors, the US exceptionalism that’s fueled the record-breaking rally on Wall Street has run its course.

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Despite resilient consumption and artificial intelligence optimism, US economic growth slid to an almost two-year low last quarter while inflation stayed high. Confidence is starting to waver, with the S&P 500 Index ending a five-month winning streak in April following a series of major earnings misses.

These are signs that playbooks founded on expectations that the world’s No. 1 economy and its companies will outdo others even with higher rates are flawed, according to contrarians including Pictet Asset Management and Amundi SA. Instead, there are better opportunities in Europe and Asia, given more benign valuations and inflation outlooks, they said.

US exceptionalism “is overrated,” said Luca Paolini, chief strategist at Pictet. “There’s probably too much optimism about the US in terms of growth and too much pessimism about the rest of the world.”

The arguments put forth reflect the nagging concern some investors have about the toll that higher-for-longer US interest rates will yet take on growth and corporate health, while balancing that against the advantage enjoyed by dollar-based assets when the world’s reserve currency is beating all comers.

Paolini, a voting member on Pictet’s investment committee, said the Swiss asset manager has been reallocating money away from the US to Europe in the past few weeks. It sees value in domestically-oriented sectors such as consumer goods and banks, as well as UK stocks due to its exposure to commodities, he added.

Growth is rebounding in Europe, while there are indications that the European Central Bank and the Bank of England may ease policy before the Federal Reserve.

A survey by Bank of America Corp. last month showed global fund managers had the biggest overweight position on European equities since February 2022. JPMorgan Chase & Co. analysts said late last month that more attractive valuations may drive an improving risk-reward ratio for euro zone shares relative to the US.

In an early sign of such a sentiment shift, the S&P 500 has been lagging its key European and Asian counterparts since the end of March, after mostly outperforming them in the past five quarters.

Monica Defend, head of the Amundi Investment Institute, said Europe’s largest asset manager is underweight the US in its global equity portfolio. The firm, which manages more than $2.1 trillion, is overweight UK stocks and neutral on Europe.

“US tech is overvalued, and you don’t want to be exposed to consumer-oriented sectors at a time of an economic slowdown,” Defend said. “The disinflation story is much more credible in Europe than in the US.”

Asia rising

Other asset managers also are making adjustments.

T. Rowe Price has amped up its Asian equity investments this year while holding large positions in the US. Asia’s dollar-based exporters and “countries with strong domestic growth stories” are likely to outperform amid uncertainty about the US economy, said Rahul Ghosh, global equities portfolio specialist at the firm, which manages about $1.5 trillion.

Some of T. Rowe’s “concentrated strategies” have been increasing exposure to financial and tech stocks in Indonesia and South Korea, while diversified funds are adding to Chinese equities positions this year, Ghosh said.

While a delay in Fed rate cuts puts pressure on Asian central banks and foreign inflows, regional economies are supported by relatively lower levels of inflation. Valuations also work in Asia’s favor. The MSCI Asia Pacific Index is trading at about 14 times forward earnings, similar to Europe’s benchmark, while the S&P 500 is at a near-21 times multiple.

Hong Kong stocks have been a prominent beneficiary of global funds’ search for cheaper alternatives, delivering a world-beating rally in recent weeks. India, one of the few major markets that advanced last month, continues to trade near record-high levels as the economy gets support from infrastructure spending and domestic demand.

Asia has historically tended to outperform the US during a Fed easing cycle, Ray Sharma-Ong, head of multi-asset investment solutions of Southeast Asia at abrdn Plc, said on Bloomberg TV. The asset manager prefers India, China, Korea and Taiwan.

Meanwhile, Pictet and Amundi are among investors that are overweight Japan, where a weak yen helps exporters and rising consumer prices aid local manufacturers.

Investor positioning “looks crowded in US equities, especially growth stocks with a technology theme,” said John Stopford, head of multi-asset income at Ninety One. “We have no intentions currently to add to US stocks at the expense of Asia.”

—With assistance from Abhishek Vishnoi, Annabelle Droulers and Haidi Lun.

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