Foreign Owned US Assets

How much of America do foreigners really own? 9/27/16, Market Watch

The Commerce Department released its latest data on foreign ownership of U.S. assets on Tuesday. And its findings may be surprising to some.

According to the data, the value of foreign-owned American assets climbed to $32.5 trillion in the second quarter, while total foreign assets held by Americans reached $24.5 trillion, leaving the U.S. with an investment deficit of $8 trillion.

But though the percentage of U.S. assets owned by foreigners has ballooned over the past few decades, the perception that American assets are largely owned by foreign interests is inaccurate, according to an analysis of available data by Jay Bryson, a global economist at Wells Fargo, and Harry Pershing, an economic analyst at the San Francisco-based bank.

To start, it helps to explore what types of assets are owned by foreigners.

The largest category, by far, is portfolio assets. This includes tradable securities like bonds and stocks. They account for roughly half of the assets owned by foreigners.

Next comes foreign direct investment, the outright ownership of a company by a foreign entity, which amounts to 20%. This is followed by “other assets” at 16%, and derivatives at 10%. The breakdown can be seen in the charts below:

Foreigners own about $17 trillion worth of American portfolio assets—representing shares of funds like mutual funds, exchange-traded funds, etc. Foreign holdings of American portfolio assets are concentrated in bonds, worth about $11 trillion. Of this, Treasurys constitute the largest share, worth about $6.3 trillion, according to Bryson and Pershing.

There was $77 trillion worth of long-term securities outstanding in U.S. financial markets during 2015. Of this, foreigners owned $16.2 trillion, or 21%.

“These ownership ratios have generally trended higher over time, but the perception that foreign investors own the majority of U.S. securities is simply not supported by the data,” Bryson and Pershing said.

Of all U.S. assets, foreigners own the largest share of outstanding Treasury securities. According to the latest available data, foreigners owned 48% of all Treasury debt. Although it’s still high, the Wells Fargo economists note that it is down from 60% in 2008.

Foreign ownership of other assets is far less pervasive. Foreigners currently own about 25% of outstanding corporate bonds, 15% of American stocks and 12% of agency securities (a category that includes mortgage-backed debt).

In terms of country of ownership, Japan holds the largest amount of U.S. portfolio assets, followed by China. However, China is the largest foreign holder of U.S. Treasury bonds, with about 10% of outstanding debt sitting in accounts controlled by the Chinese government.

The three countries rounding out the top five are the Cayman Islands, the United Kingdom, and Luxembourg. Bryson and Pershing note that the levels for the Cayman Islands and Luxembourg are likely inflated because custodial banks may own these assets on behalf of investors based elsewhere. Unfortunately, this makes it difficult to ascertain who actually owns many of these securities.

Foreign direct investment, the outright ownership of American assets by foreigners, totaled $6.9 trillion at the end of the second quarter, with the largest share of this concentrated in the manufacturing sector, followed by the finance and insurance industry and the wholesale trade industry.

The value of directly invested capital by businesses based in Western Europe was $2.2 trillion in 2015, representing about 70% of the total. The Asia-Pacific region is a distant second, with about 18% of the FDI total. The amount attributable to Japan amounted to $400 billion, much larger than the $15 billion contributed by China.

So next time you see a headline about the purchase of a U.S. company by a foreign buyer, take it with a grain of salt. Americans still own the vast majority of American assets.

https://www.marketwatch.com/story/how-much-of-america-do-foreigners-really-own-2016-09-27