Quarterly Update: Foreign Ownership of U.S. Assets

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Author: Dinah Walker, Analyst, Geoeconomics

Council on Foreign Relations

April 28, 2014

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Foreign ownership of U.S. assets has increased significantly since 1945, growing especially quickly over the past two decades. This growth is the result of a general increase in cross-border investment, with rising foreign ownership of U.S. assets nearly matched by rising U.S. ownership of assets abroad.

These graphs reflect the following shifts:

  • Foreign ownership of U.S. bonds issued by government-sponsored enterprises (agencies) decreased 4.2 percent in the fourth quarter of 2013. Foreigners now hold half as many agency securities as they did in 2008.
  • Foreign ownership of treasuries increased 3.3 percent in the fourth quarter of 2013, driven by increases in holdings by both the official and private sectors. Foreign official institutions hold 43 percent of outstanding marketable treasuries and private foreign investors hold 18 percent.
  • Both foreign ownership of U.S. assets and U.S. ownership of foreign assets fell in the fourth quarter of 2013.
  • As of the fourth quarter of 2013, equities and mutual funds accounted for 26 percent and treasuries accounted for 27 percent of foreign holdings of U.S. assets.

ownership_of_financial_assets

  • Cross-border investment has grown as financial markets have become increasingly globalized.
  • Since 1985, foreigners have consistently owned more U.S. assets than Americans own foreign assets.
  • In the fourth quarter of 2013, U.S. ownership of foreign assets decreased 1.8 percent, while foreign ownership of U.S. assets decreased 0.1 percent.

market_size

  • If the Federal Reserve's holdings are excluded, foreigners own nearly 60 percent of outstanding marketable treasuries.
  • Foreigners own less-significant portions of other asset markets.
  • Their holdings of equities, though large in dollar terms, are small relative to the size of the equity market.

foreign_ownership_us_treasuries_and_agencies

  • Foreign ownership of U.S. treasuries has risen considerably since the middle of the 1990s and has been keeping pace with the growth of the market since 2012.
  • Before 2008, foreign ownership of the agency market was growing at a relatively rapid pace.
  • Since 2008, foreign holdings of agencies have declined steadily.

foreign_ownership_of_us_treasuries

  • The growth in foreign ownership of treasuries has come from official buyers (i.e., foreign central banks and sovereign wealth funds).
  • Foreign private holdings have not grown as a share of the market over the past ten years.
  • The much discussed "flight to safety," which is presumed to underpin the dollar, largely reflects the huge policy-driven demand for dollar reserves from emerging-market central banks, rather than the preferences of private sector investors.

foreign_ownership_of_us_agencies

  • A significant portion of growth in foreign ownership of agencies prior to 2008 was driven by official buyers.
  • Since 2008, foreign official buyers have dramatically reduced their holdings of agency securities, from nearly 16 percent of the market to 8 percent.
  • Private foreign investors reduced their holdings of agencies by 6 percent in the fourth quarter.

foreign_ownership_of_us_corporates_and_equities

  • Foreign ownership of corporate bonds as a percentage of the total market has grown since 1945. Although growth has been modest over the past two decades, foreign holdings are now at levels not seen since the late 1980s.
  • Foreign ownership of U.S. equities has grown slowly but steadily since the 1970s.

foreigners_us_portfolio

  • The foreign preference for treasury ownership had been waning over the past forty years but has returned since the crisis.
  • Since the crisis, foreigners have allocated a declining share of their U.S. portfolios to corporate bonds and agencies.
  • Their allocation to equities and mutual funds has rebounded since 2008 and is now close to the 2000 peak.

foreign_direct_investment

  • The United States invests more directly into foreign enterprises abroad than foreigners do into the United States.
  • The sharpest contrast is in Latin America.

portfolio_risk

  • The United States tends to hold riskier assets abroad (equities) than foreigners hold in the United States.

us_niip_and_current_account

  • Because of persistent U.S. current account deficits and corresponding capital inflows, foreigners buy more U.S. assets than vice versa. But because U.S. holdings abroad have usually yielded higher returns than foreign holdings in the United States have, the U.S. net international investment position has deteriorated less—although there was a sharp decline in 2011.
  • The net international investment position deteriorated further in 2012.
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