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.
Things to look for in these graphs:
Since 2002, the increase in foreign ownership of Treasury bonds has been driven almost entirely by government buyers.
Until the crisis, government buyers were also driving the increase in foreign holdings of bonds issued by government-sponsored enterprises (agencies). However, since the start of the financial crisis, foreign official holdings of bonds issued by government-sponsored enterprises have steadily declined, while private foreign holdings have risen after an initial dip.
The U.S. portfolio of foreign assets is relatively risky, with a significant share of holdings in equities that generate gains during a boom but suffer losses in economic downturns. By contrast, the value of foreign holdings of U.S. assets is less volatile because of the concentration in treasuries.
Following a sharp decline in 2008, the U.S. net international investment position recovered in 2009 because of strong equity market performance. The net international investment position deteriorated markedly in 2011 and further in 2012. External financial liabilities now exceed external financial assets by over $4.4 trillion.
Cross-border investment has grown as the world has become increasingly globalized.
Since 1985, foreigners have consistently owned more U.S. assets than Americans own foreign assets.
In the fourth quarter of 2012, U.S. ownership of foreign assets declined nearly 9 percent, while foreign ownership of U.S. assets remained essentially flat.
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, while large in dollar terms, are small relative to the size of the equity market.
Foreign ownership of U.S. treasuries has risen considerably since the middle of the 1990s but has been declining slowly as a share of the market since mid-2011.
Before 2008, foreign ownership of the agency market was growing at a relatively rapid pace.
Since 2008, foreign holdings of agencies have declined gradually.
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.
As with treasuries, a significant portion of growth in foreign ownership of agencies has come from official buyers.
Foreign official holdings of agencies continue to decline, while private holdings have stabilized and risen since 2008.
Foreign ownership of corporate bonds as a percentage of the total market has grown significantly 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.
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 has returned to precrisis levels.
The United States invests more directly into foreign enterprises abroad than foreigners do into the United States.
The sharpest contrast is in Latin America.
The United States tends to hold riskier assets abroad (equities) than foreigners hold in the United States.
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.
Author:
Dinah Walker
Council On Foreign Relations Quarterly Geoeconomics Update: Foreign Ownership Of U.S. Assets
