Newspaper article The Christian Science Monitor

Less Foreign Money Flows to US Markets

Newspaper article The Christian Science Monitor

Less Foreign Money Flows to US Markets

Article excerpt

THE United States dollar has been climbing again in relation to overseas currencies. Smaller stocks have been nudging US equity markets higher. And many economists expect the recession to be over by mid-summer.

Are these factors enough to lure overseas investors - who have been tempted by high interest rates abroad to keep their money at home of late - back into US capital markets? An infusion of overseas capital, whether in terms of direct foreign investment or purchases of stocks or bonds, helps hold down US interest rates, provides funds for American companies to expand, and stimulates long-term North American economic growth.

But no big infusion of overseas capital can be expected this year or for the next few years, says Nicholas Sargen, a capital markets expert with Salomon Brothers. While US equities are expected to look better to foreign investors this year than in 1990, there will likely not be a repeat of the record inflows to the US that characterized the mid-to-late 1980s, he says. Nor will much new money be coming for direct investment and purchase of US bonds.

In terms of attracting overseas capital, the 1980s were golden years for the US. According to David Strongin, director of international finance for the Securities Industry Association (SIA), overseas investors made net purchases of almost $65 billion in US equities during that decade. At the beginning of the '80s they held some $48 billion in equities; given continued purchases and market appreciation they owned equities worth about $257 billion by the end of the decade. That represents about 7 percent of all US equities outstanding.

But the party ended in 1990.

That year, for the first time since 1974, according to Mr. Strongin, the US "suffered a net portfolio outflow." US investors bought, on a net basis, more non-US securities than foreign investors bought US securities, on a net basis.

The largest sellers of US financial instruments last year were Japanese investors. …

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