Introduction
Yesterday, I published a missive updating foreign holdings of US
financial assets. 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 December quarter.
The two tables supporting the discussion broke out foreign holdings of US
financial assets as of the end of given periods -- the value of outstandings
at the end of those periods. Both tables are repeated in this missive (Tables
2 and 3).
In the current material, I want to broaden 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 have 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.
The period covered runs from 1999 through 2003, 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 Table 1.
They involve flows, not outstandings.
- Over the five-year period running from 1/1/99 through 12/31/03,
foreigners acquired a net total of $3.792 trillion of US financial assets.
- Over this same five-year period, the flow of foreign money into the
five capital-market instruments I've broken out totaled $1.968 trillion. On
average over this period, this equaled 51.9% of the overall total net acquisition
of US financial assets by foreigners.
- Of special interest in the most recent year were foreign rates of
acquisition of Treasury and agency securities. During 2003, foreign investors
absorbed $274.8 billion of Treasuries, which equaled a whopping 69% of total
Treasury issuance last year of $398.4 billion.
- As for agency obligations, foreign investors acquired a mere $12.2
billion during 2003, far below the $103.4 billion annual average of the prior four
years (1999-2002). Foreign private investors actually disinvested in
agencies during 2003, coming in at a minus $18.5 billion. It is almost certain the
negative news coming from Fannie Mae and Freddie Mac during the year had a
major impact on these results.
- One thing for sure: The paltry accumulation of agencies by foreign
investors last year had nothing to do with lack of agency issuance. During 2003,
US agencies, floated a net of almost $571 billion in new debt, up
approximately $16 billion or 3% from 2002's total of $554.5 billion.
- During the five-year period of 1/1/99 through 9/30/03, the flow of
foreign funds coming into US stocks totaled a substantial $516 billion, equal to
13.6% of the overall net acquisition of US financial assets by foreigners
during the period. But as Table 1 reveals, there was a sharp falloff in the rate
of acquisition during 2002 and 2003.
NOTE: The following observations relate to data contained in Tables 2 and
3. They involve outstandings, not flows, and the text is repeated from
yesterday's missive.
- As of 12/31/03, foreign investors held a total of $7.803 trillion of US
financial assets, up about $286 billion from revised holdings of $7.516
trillion as of 9/30. From 12/31/02, the increase was almost $733 billion. (See
Table 2.)
- As of 12/31, foreign liabilities totaled $3.508 trillion, resulting in
a net foreign claim against the US of $4.295 trillion. (See Table 2.)
- The dollar put in a major bottom in the spring of 1995, commencing a
steep rise in its exchange-rate value into early 2002. Note in Table 1 how the
expansion in the growth of foreign holdings of US financial assets paralleled
the dollar's rise.
- As Table 2 indicates, 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 12/31, these totaled
$5.361 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.
- As of 12/31, foreign investors held the following respective
percentages of total outstandings of Treasuries, agencies, US corporate bonds and US
equities: 37.1%, 11.2%, 20.0% and 12.4%. Combined holdings of Treasuries and
agencies
were 21.5% 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.
_____
TABLE APPENDIX
TABLE 1.
----------------------------------------------------
NET ACQUISITION OF U.S. FINANCIAL ASSETS
BY FOREIGN INVESTORS -- 1999 TO 2003*
(Billions of Dollar)
----------------------------------------------------
Years Ended December 31
---------------------------------
1999 2000 2001 2002 2003
----- ----- ----- ----- -----
Net Acquisition
of Finan. Assets 708.5 942.2 640.3 680.0 820.6
================= ===== ===== ===== ===== =====
Credit-Market
Instruments 96.6 129.5 234.6 362.7 611.2
---------------- ----- ----- ----- ----- -----
Open-Mkt. Paper -13.0 9.5 6.2 17.3 17.3
Treasury Sec. -32.4 -87.1 3.3 139.3 274.8
Agency Sec. 63.5 137.3 106.1 106.7 12.2
Corp. Bonds 101.3 72.0 120.6 89.3 307.7
----- ----- ----- ----- -----
Subtotal 119.4 131.7 236.2 352.6 612.0
----- ----- ----- ----- -----
Corp. Equities 112.3 193.6 121.4 53.2 35.5
----- ----- ----- ----- -----
Total 231.7 325.3 357.6 405.8 647.5
===== ===== ===== ===== =====
Above/Net Acquis. 32.7% 34.5% 55.8% 59.7% 78.9%
----- ----- ----- ----- -----
MEMO ITEM#
----------------
Loans to Corp-
orate Business -22.7 -2.2 -1.6 10.1 -0.8
----------------------------------------------------
DISTRIBUTION OF TREASURY/AGENCY ACQUISITIONS
----------------------------------------------------
Treasury Securities
----------------------------------------------------
Official 12.2 -10.2 10.7 43.1 127.5
Private -44.6 -76.9 -7.4 96.2 147.4
---- ---- ---- ----- -----
Total -32.4 -87.1 3.3 139.3 274.8
----------------------------------------------------
Agency Securities
----------------------------------------------------
Official 20.4 40.9 20.9 30.4 30.7
Private 43.1 96.4 85.2 76.3 -18.5
---- ----- ----- ----- ----
Total 63.5 137.3 106.1 106.7 12.2
----------------------------------------------------
*Source: "Flow of Funds Accounts of the United
States" (Federal Reserve "Z.1" release). #Al-
though "Loans to Corporate Business" are classi-
fied by the Fed as "Capital Market Instruments,"
they have been excluded them for the purpose of
this examination, since they lack the liquidity
of the other categories.
----------------------------------------------------
TABLE 2.
------------------------------------------
FOREIGNERS' U.S. FINANCIAL
ASSETS/LIABILITIES*
(Billions of Dollars --
Latest Data Released 03/04/04)
------------------------------------------
Total Total
Financial Financial
Assets Liabilities Difference
------------------------------------------
4Q04 7802.5 3507.8 4294.7
3Q03 7516.1 3580.2 3935.9
2Q03 7465.6 3664.4 3801.2
1Q03 7276.7 3940.7 3336.0
----------------------------------------
As of
12/31
-----
2002 7069.6 3757.1 3312.5
2001 6749.8 3566.9 3182.9
2000 6446.3 3488.0 2958.3
1999 5772.1 3147.8 2624.3
1998 5195.1 2776.1 2419.0
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 12/31/03* (Billions of Dollars
-- Latest Data Released 03/04/04)
-----------------------------------------------
% of
Total
Total US Financial Assets -----
Held by Foreign Investors 7802.5 100.0
===============================================
Credit-Market Instruments# 3742.3 48.0
------ ----
Open Market Paper 152.7
US Govt. Securities 2170.6
Treasury 1489.0
Agency 681.6
US Corporate Bonds 1293.9
-----------------------------------------------
US Corporate Equities 1618.4 20.7
------ ----
Credit-Market Instr.
+ Corp. Equities 5360.7 68.7
====== ====
-----------------------------------------------
Detail of US Government Securities
-----------------------------------------------
Treasury 1489.0
Official 838.1
Private 650.9
Agency 681.6
Official 218.1
Private 463.5
------
2170.6
======
-----------------------------------------------
*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, accounting for why the other items in
the "Capital-Market Instruments" will not add
to the total shown.
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