A PENSION FUND for Danish university staff cannot expect to make international headlines very often. But on January 20th AkademikerPension did just that, by announcing the sale of its holdings of American government bonds. The fund’s managers stressed that the decision was not a reaction to America’s territorial threats to Greenland, a Danish territory, but a judgment on Washington’s rampant overspending.
The fund is certainly not ditching American stocks, which make up 60% of its holdings of listed equity. Its private-equity assets tilt similarly heavily to America. Of its high-yield bonds, American issuers account for an even larger share, almost 80%.
AkademikerPension’s American split therefore illustrates rather neatly the most powerful tug of war in global markets today. Even after the S&P 500 slid by 2% on January 20th, following another tariff threat from Donald Trump over Greenland (since withdrawn), American assets continue to attract investors.
On one end of the rope, American institutional decay is pulling hard. Investors at home and abroad fear a noxious combination of American isolationism and occasional belligerence. Self-destructive economic policy, especially on trade, is a constant preoccupation. They fret about Washington’s immense deficits, the attacks by the White House on the independence of the Federal Reserve and the lack of legislative restraint on an unpredictable and sometimes hostile president.
But pulling on the other end are the forces of unparalleled American dynamism. America boasts immense and effective capital markets, and unlike almost every other rich country has managed to sustain solid productivity growth for the past two decades. Ten of the 12 listed companies with stockmarket values of over $1trn are American. So are almost all the private firms leading the race to supremacy in artificial intelligence. In one investor’s most cynical interpretation: how much will Mr Trump’s threats against Greenland affect earnings for Microsoft or Apple this year?
Days like January 20th make it look as if decay is winning. But the same seemed true last April, after Mr Trump declared that enormous tariffs would be levied on imports from around the world. Panic about economic damage and geopolitical isolation ruled only briefly. In the first 11 months of 2025, $628bn poured into American stocks from abroad. Despite the Danish sale, foreigners own more American government bonds than ever.
Some investors argue that Mr Trump’s proclivity for backing down—nicknamed the TACO trade—is what keeps the stockmarket propped up. That is part of the answer, but only part. America’s effective tariff rate is 11.2%, higher than at any point since the second world war. At the same time, earnings per share for companies listed in America grew by around 12% in 2025, compared with 1% for those in other rich countries. Had earnings slumped, Mr Trump’s partial u-turns would not have been enough to prevent share prices from plunging.
For all the excitement about European stocks, especially those of banking and defence firms, the continent’s corporate earnings have yet to top the levels of 2008, before the worst of the global financial crisis. Analysts at Goldman Sachs expect annual growth in earnings per share of around 6% for American stocks over the next five years, twice the rate in the rest of the rich world.
The world should not expect too much righteousness from its investors. Financial markets are ultimately amoral. Any Europeans inspired by patriotism or nudged by their governments into selling American assets will provide cheap openings for less scrupulous buyers. Anything less than outright capital controls—exceedingly unlikely even now, despite rising tension—will probably have little effect.
But nor should Americans believe that their country’s corporate dynamism makes it invulnerable to a financial shock. Investment committees from Sydney to Stockholm now have all the priming they need. An economic slowdown beginning in America, a revival in the earnings fortunes of companies elsewhere in the world, or any sign that America’s leadership in AI is fading would have been damaging at the best of times. Now, it would be pounced on as a welcome excuse for a long-delayed rotation out of American assets more broadly. Should American dynamism falter, the sell-off that follows will be all the more violent. ■
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