NEWS AND COMMENTARY
November 13, 2000
Foreign Investors On Pace To Double U.S. Stock Purchases
By Dow Jones Newswires
Overseas Investors Double U.S. Stock Purchases? Unlikely ... Weiss comments
BOCA RATON, Fla. -- Foreign investors continued to bet on the strength of the U.S. economy in the first eight months of this year, setting a pace to nearly double their purchases of U.S. stocks from last year, according to an analysis by the Securities Industry Association.
Investors from overseas are on pace to buy $193.8 billion in equities in U.S. companies this year, up from $107.5 billion in 1999, according to the trade group. Overall, foreign investors acquired $474.4 billion in U.S. stocks, bonds and other securities.
'Given the increased volatility in U.S. markets as a result of questions about the future of interest rates, the impact of higher oil prices on inflation, specifically, and the economy overall, one would have thought that foreign investors would have stayed home,' said David Strongin, SIA's director of international finance.
'Instead, they plowed record amounts of cash into securities from New Year's Day through August this year, putting them on track to have acquired more U.S. securities by this year's end than in 1997, the previous record year.'
Investors from overseas acquired $388 billion in U.S. securities in 1997.
U.S. investors were not as confident in overseas markets, on pace to acquire $30.6 billion in foreign securities, according to the analysis. Weakness in the euro and some uncertainty in emerging markets may have played a factor in the lukewarm U.S. investment.
Through August, investors from overseas held nearly $4.2 trillion in U.S. securities, compared with American investors who held nearly $2.5 trillion in foreign securities, the trade group said. Foreign holdings in U.S. have more than tripled since 1990.
However, the investment mix is changing as foreign investors have begun putting more money in U.S. equities, instead of focusing on U.S. treasuries. Equities are expected to account for 59.1% of foreign purchases this year, down from 69.5% of their buys in 1999 and 81.9% of their purchases in 1998.
Foreign investors also were one of the largest purchasers of U.S. securities since 1997, according to the study. Investors from overseas bought $316.4 billion in U.S. stocks and bonds from 1997 until August 2000, ranking third behind U.S. mutual funds and U.S. life insurers, who purchased $530.8 billion and $338.3 billion respectively.
We doubt overseas investors are buying now - in fact, if they're not already dumping US assets now, they will be soon! Analysts are thumping the "good news" drum based on old information, which only goes through August. In August, the bulls were still frisking around Wall Street, enjoying one last summer run-up. You'll remember that September was when a chill wind blew through Wall Street and the market fell on its face.
Now, things are rapidly getting worse. We have election uncertainty eroding confidence in U.S. markets. If this drags on -- and we believe it will -- look for a wave of selling by overseas investors.
The election crisis has already slammed the stock market, and many investors have fled to the safety of bonds. But it won't take long for overseas investors to rethink this strategy. Even when a winner of the presidential election emerges, whether it is awarded through concession or litigation, there will not be a clear winner. This may lead overseas investors to question the president's ability to keep the U.S. dollar and the economy strong. When this happens, overseas investors will dump stocks, bonds, and any other type of investments in the U.S., as they grab their money and flee for the safety of other economic shores.
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