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(Bloomberg) — The US is risking potential erosion of its longtime dominance in capital markets amid President Donald Trump’s global trade war, warned John Zito, co-president of Apollo Global Management Inc.’s asset-management arm.
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“US-listed companies have consistently traded at 40% to 70% valuation premiums over global peers — not just because of earnings strength or sector mix, but because capital trusts this system,” Zito wrote in a letter to investors seen by Bloomberg News. “The longer and more volatile the path to a trade-policy reset, the greater the risk to this regime and its benefits.”
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In issuing his warning, Zito follows Apollo Chief Executive Officer Marc Rowan, who earlier this month said he’s concerned about damage to the US brand from Trump’s tariff escalations. While Zito didn’t mention the president by name in his letter, he described tariffs, reshoring and the changing of supply chains as secondary to the capital-markets contest between US and other regions that are on the rise.
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The problem isn’t just a Wall Street issue and could have ripple effects throughout the economy, according to Zito. If the US loses its premium, “the consequences will be measured not in basis points, but in trillions of dollars in lost enterprise value,” he wrote. “It could mean substantial cuts in jobs tied to innovation and loss of long-term investment.”
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US dominance has come into question as Trump reworks trade relationships. In the meantime, investors this year have flocked to other parts of the globe for returns. The Stoxx Europe 600 Index has climbed about 3.4% this year, while the S&P 500 has slumped 5.5%. Hong Kong’s Hang Seng Index has surged roughly 9.7% in the same time frame.
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“The benefits of leading capital markets are difficult to understate,” Zito wrote. “They go well beyond public markets — the US has long been the hub for venture capital, private equity and institutional capital formation, funding innovation across technology, health care, energy and more.”
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Zito cited elevated competition from Asia and the Middle East, but said Europe might be best-positioned to take advantage of the capital-markets rivalry. He cited ambitious defense spending and a growing appetite for reforms.
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“The risk is not that the US falls behind overnight. It won’t necessarily show up in next quarter’s earnings,” Zito wrote. “Rather, it is that capital gradually begins to price the US like any other market. If that happens, the US loses the premium and the multiplier effect.”
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