American Investors Playing Role in Dollar Slide

With the US deficit large and rising, the appetite of foreign investors for US securities is keenly monitored. Often the TIC data is viewed in its aggregate form, which is really on a net basis, net that is of what American investors are going. By looking at what Americans themselves are doing illustrates another source of pressure on the greenback.

In the second half of last year, American investors sold about $110 bln of foreign bonds. As the money was repatriated, it exacerbated the apparent short dollar squeeze, that saw the greenback soar. However, this year, through July, the most recent data available, indicates American investors have bought almost $189 bln of foreign bonds this year.

American were selling foreign bonds holdings a few months before they began paring back on foreign equity holdings and continued selling foreign equities a couple of months longer. From October 2008 through Feb 2009, American investors sold about $47 bln of foreign shares. In the March-July period, they have re-bought almost $49 bln of foreign stocks.

Separately, as part of the US net international investment position, the BEA tracks US holdings of foreign equities by country. We took a quick look at the time series since 1994 through 2008 and found several interesting developments.

First, despite the seemingly keen interest in emerging markets, developed Europe accounts for 55% of US investors foreign equity holdings, essentially unchanged since 1994. Within Europe, the share devoted to the UK slipped from 23% to 18% between 1994 and 2008. It share was picked up be Switzerland, which has seen its share of US foreign equity holdings rise to 9% in 2008 form 4% in 1994. Sweden's share has fallen below 1% in 2008 for the first time in at least 14 years. The Dutch share has fallen from 9% to 4%. France and Germany's share rose 3% points and 2% points respectively.

Second, in the Americas, Canada's share has ticked up 1% to 10% , but as recently and 2003, held a 6% stake. Mexico's share has slipped to 2% from 5% in 1994. Brazil's share, which was less than 1% until 1997, stood at 4% in 2008. Overall the share accounted for by the Americas has risen 2 percentage points to 16% from 14% in 1994.

Third, counter-intuitively, the American share of foreign equities invested in Asia-Pacific and South Africa has slipped marginally--from 31% in 1994 to 28% in 2008. Japan's share has fallen from 23% to 17%. At the start of the period, investment in South Korea and South Africa was less than 1% and in 2008 it stood at 3% and 1% respectively. Australia's share has slipped to 3% from 4% and Hong Kong's share has been cut in half to 2%. Singapore accounted for less than 1% in 1994 and rose to 2% in 2001, but has been below 1% against since 2004.