Introduction
On Wednesday, I published a missive updating foreign holdings of US financial assets (dated 6/16, "1Q2004 Flow of Funds -- Foreign Data"). It examined data from the Federal Reserve's latest "Z.1" release ("Flow of Funds Accounts of the United States"), and the numbers available were through the March quarter.
The three tables supporting that discussion broke out foreign holdings of various US financial assets as of the end of given periods -- the value of outstandings at the end of those periods.
(NOTE: Wednesday's text and those tables are repeated in this missive, beginning after Table 1.)
The current material broadens the examination to include the actual dollar flows from foreign sources into US financial assets, as well as into selected classes of capital-market instruments (Table 1). I've segregated the classes of assets I consider readily salable to illustrate the potential exposure the US markets would have to even a sizable diminution in these flows. (These classes conform to the ones examined in this week's earlier missive.)
The period covered runs from 2000 through this year's first quarter, inclusive. The numbers are subject to revision, but the existing data are more than adequate for "big-picture" purposes.
_____
Some Numbers
NOTE: The following observations relate to the data contained in Tables 1. They involve flows, not outstandings.
* Over the 4.25-year period running from 1/1/00 through 3/31/04, foreigners acquired a net total of $3.309 trillion of US financial assets (accounting for the March 2004 quarter on a non-annualized basis).
* Over this same 4.25-year period, calculated in the same manner, the flow of foreign money into the five capital-market instruments I've broken out totaled $2.206 trillion. On average over this period, this equaled 66.7% of the overall total net acquisition of US financial assets by foreigners.
* Of special interest is the most recent quarter, when at an annual rate, foreigners acquired $1.155 trillion of US credit-market instruments, equal to 122% of their total net acquisition of US financial assets during the period. Were this pace to be sustained for the entire year (very unlikely), it would establish a record by a substantial margin. On a full-year basis, the existing record was $519.7 billion, set last year.
* The dollar's exchange-rate value put in a significant bottom in the spring of 1995, commencing a steep rise into early 2002. Also commencing in 1995, certainly tied to the dollar's increasing strength, was large growth in the foreign acquisition of US credit-market instruments. Total foreign flows into this area in 1994 were a relatively modest $133.3 billion, then jumped to $246.8 billion in 1995, and expanded further, on balance, to 2003's full-year peak of $519.7 billion. The non-annualized total for this year's first quarter was about $288.8 billion, equal to almost 56% of 2003's record total.
* During the March quarter, foreign acquisition of Treasury securities was equal to 146% of the Treasury's total issuance of debt ($679.8 billion, versus $465.0 billion, at annual rates). (NOTE: This mathematical outcome arises when a domestic investment sector or sectors are net sellers of existing holdings during the period.)
* As for agency obligations, foreign acquisition equaled a stunning 190% of total issuance ($250.8 billion, versus $132.3 billion, at annual rates).
* The combined Treasury and agency purchases by foreign investors during the first quarter equaled a remarkable annual rate of 156% of total issuance ($930.6 billion, versus $597.3 billion).
* During the 4.25-years running from 1/1/00 through 3/31/04, the flow of foreign funds coming into US stocks totaled a substantial $406.9 billion (March quarter non-annualized), equal to 12.3% of the overall net acquisition of US financial assets by foreign investors during the period. But as Table 1 reveals, there was a sharp falloff in the rate of acquisition throughout the period, particularly in this year's first quarter.
Table 1.
----------------------------------------------------
NET ACQUISITION OF U.S. FINANCIAL ASSETS
BY FOREIGN INVESTORS -- 2000 TO 03/31/04*
(Billions of Dollar)
----------------------------------------------------
Years Ended December 31
-------------------------- 03/31
2000 2001 2002 2003 2004@
----- ----- ----- ----- -----
Net Acquisition
of Finan. Assets 942.2 640.3 680.0 810.5 945.1
================= ===== ===== ===== ===== =====
Credit-Market
Instruments 225.9 319.8 439.1 519.7 1155.0
---------------- ----- ----- ----- ----- ------
Open-Mkt. Paper 9.5 6.2 17.3 20.3 11.5
Treasury Sec. -87.2 3.3 139.4 268.5 679.8
Agency Sec. 137.3 106.1 106.7 -23.3 250.8
Corp. Bonds 168.4 205.8 165.6 255.1 258.3
----- ----- ----- ----- ------
Subtotal 228.0 321.4 429.0 520.6 1200.4
----- ----- ----- ----- ------
Corp. Equities 193.6 121.4 53.2 37.0 6.9
----- ----- ----- ----- ------
Total 421.6 442.8 482.2 557.6 1207.3
===== ===== ===== ===== ======
Above/Net Acquis. 44.7% 69.2% 70.9% 68.8% 127.7%
----- ----- ----- ----- ------
MEMO ITEM#
----------------
Loans to Corp-
orate Business -2.2 -1.6 10.1 -0.8 -45.5
----------------------------------------------------
DISTRIBUTION OF TREASURY/AGENCY ACQUISITIONS
----------------------------------------------------
Treasury Securities
----------------------------------------------------
Official -10.2 10.7 43.1 128.5 382.1
Private -76.9 -7.4 96.2 140.0 297.7
---- ---- ---- ----- -----
Total -87.1 3.3 139.3 268.5 679.8
----------------------------------------------------
Agency Securities
----------------------------------------------------
Official 40.9 20.9 30.4 24.8 76.7
Private 96.4 85.2 76.3 -48.1 174.1
----- ----- ----- ----- -----
Total 137.3 106.1 106.7 -23.3 250.8
----------------------------------------------------
*Source: "Flow of Funds Accounts of the United
States" (Federal Reserve "Z.1" release). @Season-
ally adjusted annual rate. #Although "Loans to
Corporate Business" are classified by the Fed as
"Capital Market Instruments, they have been ex-
cluded the purpose of this examination, since
they lack the liquidity of the other categories.
----------------------------------------------------
From the Missive Dated 6/16 ("1Q2004 Flow of Funds -- Foreign Data"}
The following observations relate to data contained in Tables 2, 3 and 4. They involve outstandings, not flows, and the text and tables are repeated from Wednesday's missive.
* As of 3/31/04, foreign investors held a total of $8.427 trillion of US financial assets, up about $423 billion from revised holdings of $8.004 trillion as of 12/31. From 3/31/03, the increase was approximately $847 billion. (See graph below and Table 2 at the end of the text.)
* As of 3/31, foreign liabilities totaled $3.255 trillion, resulting in a net foreign claim against the US of $5.172 trillion. (See following graph and Table 2.)
* The dollar's exchange-rate value put in a major bottom in the spring of 1995, commencing a steep rise into early 2002. Note in the above graph and in the data in Table 1 how the expansion in the growth of foreign holdings of US financial assets paralleled the dollar's rise.
* As the above graph and the data in Table 2 indicate, the United States, in its modern economic history, became a net debtor during 1985.
* Table 3 segregates the classes of capital-market assets that are readily salable by foreigners, or where a significant slowing in the rate of accumulation could adversely influence domestic prices. As of 3/31, these totaled $5.787 trillion, or a very healthy 68.7% of total US financial assets held by foreigners. This illustrates the sizable exposure US markets would have to any substantial net reduction in these holdings.
(NOTE: The following graph shows the distribution as of 3/31 of foreign holdings of US capital-market assets in relation to the total $5.8 trillion held as of that date.)
* As of 3/31, foreign investors held the following respective percentages of total outstandings of Treasuries, agencies, US corporate bonds and US equities: 39.9%, 11.6%, 25.8% and 12.1%. Combined holdings of Treasuries and agencies were 23.0% of total outstandings.
By comparison, going back to 12/31/94, not long before the dollar put in the major bottom mentioned above, foreigners held the following respective percentages of total outstandings of Treasuries, agencies, US corporate bonds and US equities: 18.3%, 5.7%, 13.8% and 7.0%. At that time, the combined holdings of Treasuries and agencies were 13.4% of total outstandings.
* As of 3/31, the 10 largest foreign holders of US Treasury debt had total holdings of $1.304 trillion. (Refer to the graph below and to the data in Table 4.)
The following tables break out foreign holdings of US financial assets as of the end of given periods. These are dollar values outstanding at the end of those periods. In a coming missive, I will present data breaking out the actual dollar flows from foreign sources into US financial assets during a given period, as well as into the classes of capital-market instruments shown in the second table below.
Table 2.
------------------------------------------
FOREIGNERS' U.S. FINANCIAL
ASSETS/LIABILITIES*
(Billions of Dollars, Latest Data
Released 06/10/04 Through 03/31/04)
------------------------------------------
Total Total
Financial Financial
Assets Liabilities Difference
------------------------------------------
1Q04 8426.6 3255.0 5171.6
------------------------------------------
As of
12/31
-----
2003 8003.7 3414.3 4589.4
2002 7375.3 3757.1 3618.2
2001 6979.2 3566.9 3412.3
2000 6590.6 3488.0 3102.6
1999 5819.9 3147.8 2672.1
1998 5199.8 2776.1 2423.7
1997 4627.3 2562.0 2065.3
1996 4042.1 2316.8 1725.3
1995 3434.5 2011.7 1422.8
1994 2909.6 1743.0 1166.6
1990 1998.4 1388.8 609.6
----------------------------------------
1985 967.4 869.7 +97.7
1984 805.3 841.6 -36.3
----------------------------------------
1980 492.8 672.8 -180.0
1970 104.8 140.5 -35.7
1960 38.9 63.5 -24.6
1950 17.4 31.4 -14.0
-----------------------------------------
*Source: "Flow of Funds Accounts
of the United States" (Federal
Reserve "Z.1" release).
-----------------------------------------
Table 3.
-----------------------------------------------
FOREIGN HOLDINGS OF US FINANCIAL ASSETS
AS OF 03/31/04* (Billions of Dollars
-- Latest Data Released 06/10/04)
-----------------------------------------------
% of
Total
Total US Financial Assets -----
Held by Foreign Investors 8426.2 100.0
===============================================
Credit-Market Instruments# 4131.7 49.0
------ ----
Open Market Paper 158.6
US Govt. Securities 2361.5
Treasury 1652.7
Agency 708.8
US Corporate Bonds 1611.6
-----------------------------------------------
US Corporate Equities 1655.4 19.7
------ ----
Credit-Market Instr.
+ Corp. Equities 5787.1 68.7
====== ====
-----------------------------------------------
Detail of US Government Securities
-----------------------------------------------
Treasury 1652.7
Official 934.6
Private 718.1
Agency 708.8
Official 231.4
Private 477.4
------
2361.5
======
-----------------------------------------------
*Source: "Flow of Funds Accounts of the United
States" (Federal Reserve "Z.1" release.) #For
the purpose of this analysis, the category
"Loans to US Corporate Business" has been ex-
cluded. As of 3/31/04, this category had tot-
al outstandings of $111.9 billion.
-----------------------------------------------
Table 4.
------------------------------------
10 LARGEST FOREIGN HOLDERS OF U.S.
TREASURY DEBT AS OF 03/31/04*
------------------------------------
Amount Held
Country (In Billions)
------------------------------------
( 1) Japan $ 639.8
( 2) United Kingdom 153.8
( 3) Mainland China 148.4
( 4) Caribbean Bank-
ing Centers@ 80.6
( 5) Hong Kong 58.6
( 6) Taiwan 49.7
( 7) Germany 45.5
( 8) OPEC 45.4
( 9) Switzerland 41.8
(10) Korea 40.5
------------------------------------
Total $1304.1
------------------------------------
* Estimated foreign holdings of
US Treasury marketable and non-
marketable bills, bonds and notes
based on Treasury Foreign Port-
folio Investment Survey benchmarks
and on monthly data reported under
the Treasury International Capital
(TIC) reporting system. Totals
comprise both official and private
holdings. @Includes Bahamas, Ber-
muda, Cayman Islands, Netherlands
Antilles, and Panama.
------------------------------------
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