U.S. Investment by Foreigners Slumps by Half
Foreigners irked by rising interest rates are abandoning U.S. financial markets, an investment flight that includes a selloff in stocks for the first time in two years.
Foreign investment in all U.S. securities dropped by more than half in the second quarter, to $16 billion from $34.1 billion, the Securities Industry Assn. said Wednesday.
Foreign investors sold nearly $2.2 billion more in U.S. stocks than they bought in the quarter, compared to net purchases of $6.3 billion in 1994’s first quarter, the group said.
The previous period in which sales by foreigners outweighed purchases was the third quarter of 1992, when net sales totaled $5 billion.
The erosion of foreign investment has been spurred by fears of further interest rate increases by the Federal Reserve Board, said David Strongin, the SIA’s vice president for international finance.
The Fed has raised interest rates six times this year in an attempt to cool economic growth and thus contain potential inflation pressures before they heat up.
But most stock and bond investors have loathed the trend. For one, higher rates increase the cost of corporate borrowing and hurt profits that benefit stock values. Also, higher rates on new securities reduce the value of existing U.S. Treasury bonds and other securities that pay fixed rates of return.
Leading the foreign selloff in the second quarter were investors in Latin America and the Caribbean, selling a net $15.4 billion in U.S. securities, compared to $14 billion in the previous quarter.
Led by the Japanese, Asian investors helped cushion the selloff, buying a net $25.5 billion in U.S. securities. European investors bought a net $8.8 billion.
One bright spot was in the U.S. corporate bond market, with foreigners nearly doubling their net purchases of company bonds, to $12 billion from $6.9 billion in the first quarter.
The cooler overseas climate flowed both ways, with U.S. investment in foreign financial markets dropping to a two-year low. In the second quarter, U.S. investors bought $16.5 billion more in foreign securities than they sold.
