Recent Developments in Cross-Border Investment in Securities
Bertaut, Carol C., Griever, William L., Federal Reserve Bulletin
Securities have replaced bank lending in recent years as the primary means through which funds are invested internationally, and in the process, the share of U.S. securities owned by foreigners has grown markedly. For example, between December 1974 and June 2002, the proportion of the value of outstanding U.S. equities and long-term debt securities that was foreign-owned increased from about 5 percent to about 12 percent. (1) During the same period, the value of these foreign holdings increased from $67 billion to almost $4 trillion.
U.S. holdings of foreign long-term securities have also increased over this period, although their growth has not matched the rapid growth in foreign holdings of U.S. long-term securities. At $1.8 trillion, the value of U.S. holdings of foreign long-term securities at the end of 2002 was less than half the value of foreign holdings of U.S. securities; this difference resulted in a negative net international position in long-term securities of $2.3 trillion. This disparity is also reflected in the more comprehensive U.S. international investment position, which is the value of all U.S. holdings of foreign assets minus the value of all foreign holdings of U.S. assets (chart 1). On this more comprehensive basis, the United States has for some years been the world's largest net debtor country. In recent years, the path of the net international investment position has closely mirrored that of the net long-term securities position.
The U.S. system for measuring cross-border investment in long-term securities consists of annual surveys measuring holdings of securities and monthly reports measuring transactions in securities. (2) The data are part of the Treasury International Capital (TIC) reporting system (www.treas.gov/tic). The data on holdings are collected on a security-by-security basis, whereas the transactions data are collected on an aggregated basis. Because the holdings data are security-specific, they permit extensive verification and are thus considered highly reliable. But because the data require thorough editing, they are available only after a lag of about one year. The transactions data, in contrast, are available after only forty-five days; they provide information on the magnitude and geography of recent cross-border flows as well as a broad categorization of the types of instruments giving rise to these flows. Estimates of securities holdings can be updated with the more-recent data on transactions. (3)
This article reports the latest survey data on holdings as well as the more-recent transactions data. The discussion focuses on U.S. cross-border securities activity, but it also addresses the investment patterns of some other countries and describes initiatives to improve the measurement of cross-border securities investments.
FOREIGN HOLDINGS OF U.S. SECURITIES
The most recent survey results available for foreign holdings of U.S. long- and short-term securities are as of June 30, 2002. The survey measure of foreign holdings was $4.3 trillion, of which $1.4 trillion was equity, $2.5 trillion was long-term debt, and $0.4 trillion was short-term debt. Residents of Japan and the United Kingdom were the largest portfolio investors in U.S. long-term securities by a wide margin (chart 2). The investment patterns of these two countries were quite different, however, with U.K. residents owning slightly more equity than debt and Japanese residents showing a marked preference for U.S. debt. These two countries have also been the top holders of U.S. securities in each of the past four surveys, with Japan having the largest holdings in 1989 and 1994 and the United Kingdom having the largest in 2000 (not shown in chart). (4)
Although data on the total level of foreign holdings of U.S. securities as measured by the surveys are considered reliable, the country attribution of these holdings is far from perfect, mainly because of two problems. …