Capital Flows Shift from U.S. Treasuries to U.S. Equities, Posing New Risks to the Dollar's Reserve Status
Alina Collins
Foreign net equity inflows into the US topped $600 billion in the year to March 2026 — a record, and double the net inflow into government and agency bonds. The dollar's safety anchor is migrating from Treasuries to stocks, which means it may no longer act as a haven in the next crisis.
Why are foreigners buying stocks instead of Treasuries?
In the year to March 2026, net foreign equity inflows exceeded $600 billion — twice the net inflow into US government and agency bonds. The gap is the widest on record.
This means → foreign confidence in America is shifting from "lending to the government" to "buying into corporations."
Two forces are driving the split: US fiscal health is deteriorating while corporate earnings are strengthening. In plain terms = the government is getting poorer, companies are getting richer, and capital follows profit.
AI adoption is widening the gap further — firms use AI to boost revenue, while government redistribution pressures mount.
Who is buying? How did retail investors become a major force?
Lower investment barriers are pulling global retail money into US equities. South Korean retail investors — dubbed "Western-ant traders" — and Japanese households are now significant buyers.
This means → the foreign capital base for US stocks has expanded from central banks and sovereign funds ("stable money") to retail investors ("sentiment money").
This reflects a deeper shift: the source of dollar appeal is migrating from geopolitical leadership to technological leadership.
Can stablecoins help the dollar hold its ground?
The US is accelerating the integration of blockchain technology into financial infrastructure, spanning payment systems and tokenized assets.
Stablecoins — digital currencies pegged to the dollar — could extend dollar settlement to anywhere with an internet connection. In plain terms = wherever there is a network, there is a dollar on-ramp.
Deutsche Bank calls this an "almost perfect substitution": the Treasuries foreigners stopped buying are offset by the equities they are buying and by digital dollar channels.
What makes this substitution dangerous?
Risk one: the dollar may lose its hedge quality. Historically, foreign demand for Treasuries was counter-cyclical — investors bought bonds in downturns, lifting the dollar. With the funding base shifting to retail equity flows, the dollar becomes more tightly coupled to AI-sector sentiment. This means → if the AI trade reverses, the dollar could weaken in tandem, no longer serving as a crisis safe haven.
Risk two: Japanese capital may flow home. Prime Minister Sanae Takaichi's government is pursuing an investment-led growth strategy that could redirect pension-fund allocations and reshape retail tax incentives — both groups are major US equity buyers.
Risk three: Asian currency undervaluation may have hit its limit. Deutsche Bank's model shows six of the world's ten most undervalued currencies are Asian, spanning Japan, South Korea, China, and India. A strong dollar means these currencies stay under pressure, and their tolerance for further depreciation may be near exhaustion.
What role does the renminbi play in this contest?
China is gradually loosening controls on the renminbi, lowering offshore borrowing thresholds to push internationalization.
This means → while the dollar pulls capital in through equities and digital channels, the renminbi is competing for international settlement share — the two trajectories are on a collision course.
In plain terms = this is not just a capital-flow reshuffle; it may be the opening move in a much larger currency competition.
Content is for reference only, not financial advice.