This report presents data and analyses on foreign portfolio investment in U.S. long-term securities, such as stocks and debt instruments with an original term-to-maturity in excess of one year. Data in this report are drawn from the Treasury Department’s latest benchmark survey of foreign portfolio investment in the United States as of year-end 1994, and have been combined with information from the Department’s ongoing Treasury International Capital (TIC) reporting system to present information as of December 1997 whenever possible. In addition, for purposes of presenting a historical perspective, data from previous benchmark surveys are used.
The United States Treasury Department conducts comprehensive surveys of foreign portfolio investment in long-term United States securities once every five years. The latest survey is the fifth survey conducted since their inception in 1974.
The purposes of these surveys are to determine the level of foreign portfolio investment in the United States, the countries from which investments are made, the types of investments, the industries invested in, trends in foreign investment, and the income flows resulting from these investments. These surveys collect data at the individual security level, thus allowing for detailed analysis of foreign portfolio investment.
The data presented are as of year-ends 1974, 1978, 1984, 1989, 1994 and 1997. The first five dates represent dates of the five surveys of foreign portfolio investment in the United States conducted by the Treasury Department, while the final date represents the most current date for which position estimates can be generated by combining survey data with price-adjusted TIC data. In all tables details may not add exactly to totals due to rounding.
Level of Investment and Types of Securities Purchased
| Type of Security | 1974 | 1978 | 1984 | 1989 | 1994 | 1997 |
|---|---|---|---|---|---|---|
| Equities | 24.7 | 47.8 | 104.9 | 275.2 | 397.8 | 929.0 |
| U.S. Treasury Debt | 23.8 | 38.6 | 118.1 | 333.2 | 463.5 | 1,053.0 |
| U.S. Agency Debt | N.A. | 5.2 | 12.8 | 47.7 | 107.1 | 252.0 |
| Corporate & Municipal Debt | N.A. | 6.9 | 32.3 | 191.0 | 275.6 | 572.0 |
| Total | 67.1 | 98.5 | 268.0 | 847.2 | 1,243.9 | 2,806.0 |
As can be seen from Table 1, foreign portfolio investment in the United States is and has been increasing very rapidly, especially during the 1994-1997 period. The only other period in recent U.S. history during which foreign portfolio investment has increased at a roughly comparable pace was the 1984-1989 period, during which foreign portfolio investment more than tripled over a five-year span.
During the 1994-1997 period foreign holdings of equities have increased 133%, and foreign holdings of debt securities have increased by 122%. The increase in debt holdings is in fact far more remarkable than the increase in equity holdings, since of the $1,030 billion increase in debt holdings between 1994 and 1997, $898 billion resulted from increased foreign purchases, while only $132 billion was the result of price appreciation. Quite the opposite is true of equity securities, where of the $531 billion increase during this period, only $90 billion resulted from increased foreign purchases of U.S. equities, while $441 billion was the result of price appreciation.
Historic Trends
The rate of increase in foreign holdings of U.S. long-term securities during the 1994-1997 period has in fact been the most rapid rate of increase since statistics have been kept or estimated. The following table shows measured or estimated holdings from 1914-1997, along with the average annual rate of increase.
| Year | Total | Equity | Debt | Avg. Annual % Increase |
|---|---|---|---|---|
| 1914 | 5.5 | 1.7 | 3.8 | N.A. |
| 1924 | 1.8 | 0.9 | 0.9 | (10.5) |
| 1934 | 2.3 | 1.6 | 0.7 | 2.2 |
| 1941 | 3.7 | 2.2 | 1.5 | 7.0 |
| 1949 | 4.7 | 2.5 | 2.2 | 7.1 |
| 1955 | 9.8 | 6.6 | 3.2 | 13.1 |
| 1960 | 13.8 | 9.3 | 4.5 | 7.1 |
| 1965 | 21.1 | 14.6 | 6.5 | 8.9 |
| 1970 | 37.7 | 18.7 | 19.0 | 12.3 |
| 1974 | 67.1 | 24.7 | 42.4 | 15.5 |
| 1978 | 98.5 | 47.8 | 50.7 | 10.1 |
| 1984 | 268.0 | 104.9 | 163.2 | 18.2 |
| 1989 | 847.2 | 275.2 | 571.9 | 25.9 |
| 1994 | 1,254.9 | 397.8 | 846.1 | 8.0 |
| 1997 | 2,806.0 | 929.0 | 1,877.0 | 31.1 |
As can be seen from this table, the long-term trend has been for an increasing rate of growth in foreign investment in the United States, with the 1994-1997 period representing a period of inflows unprecedented in our history. This growth is due in part to variable factors, such as a recently strong dollar, a strong U.S. economy, and upheaval in some foreign markets. However, it is also strongly influenced by basic, underlying structural changes in the international economic environment which have, and will continue to have, the effect of facilitating international investment, such as the reduction of regulatory barriers, the reduced costs of international transactions and securities safekeeping, the increased flow of cross-border information, and the trends towards standardization and increased transparency in market practices worldwide.
United States Holdings of Foreign Securities
A useful way to gain perspective on the rate of increase in foreign holdings of U.S. securities is to examine the rate of increase in U.S. holdings of foreign securities.
| Year | Foreign Long- Term Securities |
Increase | Holdings of U.S. Long-Term Securities | Increase |
|---|---|---|---|---|
| 1984 | 89 | - | 268 | - |
| 1989 | 314 | 28.7% | 847 | 25.9% |
| 1994 | 890 | 23.1% | 1,244 | 8.0% |
| 1997 | 1,446 | 17.6% | 2,806 | 31.1% |
This table shows U.S. holdings of foreign securities increasing between 1984 and 1997 from $89 billion to $1,446 billion, an increase of 16 fold. During this same period, foreign investment in U.S. securities increased from $268 billion to $2,806 billion, or over 10 fold. Thus, though foreign investment in the United States has been increasing very rapidly, U.S. investment abroad has been increasing even faster over this period. However, during the 1994-1997 period, foreign investment in the United States increased much faster than U.S. investment abroad.
Percentage of U.S. Markets Foreign Held
Another way to view foreign investment in the United States is to compare the level of foreign investments in various types of U.S. securities to the total size of these markets. This is done in the following table
| Year | Total Size | Foreign Owned | % Foreign Owned |
|---|---|---|---|
| 1974 | 677 | 25 | 2.7% |
| 1978 | 1,029 | 48 | 4.7% |
| 1984 | 2,158 | 105 | 4.9% |
| 1989 | 4,386 | 275 | 6.3% |
| 1994 | 7,129 | 398 | 5.6% |
| 1997 | 14,788 | 929 | 6.3% |
| Year | Total Size | Foreign Owned | % Foreign Owned |
|---|---|---|---|
| 1974 | 269 | N.A. | N.A. |
| 1978 | 426 | 7 | 1.6% |
| 1984 | 734 | 31 | 4.2% |
| 1989 | 1,499 | 190 | 12.7% |
| 1994 | 2,237 | 276 | 12.3% |
| 1997 | 2,956 | 572 | 19.4% |
| Year | Total Size | Foreign Owned | % Foreign Owned |
|---|---|---|---|
| 1974 | 163 | 24 | 14.7% |
| 1978 | 326 | 39 | 12.0% |
| 1984 | 873 | 118 | 13.5% |
| 1989 | 1,599 | 333 | 20.8% |
| 1994 | 2,392 | 464 | 19.4% |
| 1997 | 2,741 | 1,053 | 38.4% |
| Year | Total Size | Foreign Owned | % Foreign Owned |
|---|---|---|---|
| 1974 | 103 | N.A. | N.A. |
| 1978 | 186 | 5 | 2.7% |
| 1984 | 528 | 13 | 2.5% |
| 1989 | 1,269 | 48 | 3.8% |
| 1994 | 2,200 | 107 | 4.9% |
| 1997 | 2,848 | 252 | 8.8% |
| Year | Total Size | Foreign Owned | % Foreign Owned |
|---|---|---|---|
| 1974 | 1,212 | 67 | 5.5% |
| 1978 | 1,967 | 99 | 5.0% |
| 1984 | 4,293 | 268 | 6.2% |
| 1989 | 8,753 | 847 | 9.7% |
| 1994 | 13,958 | 1,244 | 8.9% |
| 1997 | 23,333 | 2,806 | 12.0% |
This table shows that the percentage of U.S. securities held by foreigners reached an all-time high as of year-end 1997, with a dramatic increase in the percentage of foreign held U.S. securities occurring between 1994 and 1997. This percentage increase has occurred primarily in debt securities. Though foreign holdings of equities are at an all-time high, the percentage foreign held is the same as it was in 1989, and is not significantly higher than in 1994. However, the percentage of the total U.S. debt market which is foreign held has increased greatly between 1994 and 1997. Over this period, the percentages of these markets foreign held have increased from 12% to 19% for corporate debt, from 19% to 38% for U.S. Treasury debt, and from 5% to 9% for U.S. government agency debt. Taken together, foreign holdings of these debt markets combined have increased from 12% of the total in 1994 to 22% in 1997.
Part of the reason for this increase is simply the growing internationalization of world financial markets, where an ongoing trend towards increasing cross-border investing has occurred worldwide. Also contributing to the increased percentage of U.S. Treasury debt foreign held has been the slowdown in the growth of this market. With the U.S. government deficit shrinking and turning towards surplus, the total size of this market has not been increasing as rapidly as in the recent past. Thus continued strong foreign purchases have increased their percentage of the total held much more rapidly than if the total size of this market had continued to increase rapidly.
Country Distribution of Foreign Holders
The 1994 portfolio investment survey collected data by country of foreign holders of U.S. securities. Unfortunately, bringing the country distribution forward to 1997 is quite problematic. This is because the data system which collects ongoing, monthly information on the purchases of U.S. securities by foreigners records the country from which U.S. securities are bought, but not the nationality of the actual purchaser. Thus, as frequently happens, if a Japanese firm purchases U.S. Treasury bonds by placing an order via a U.K. broker, this would appear as a U.K. purchase, not as a Japanese purchase. Thus data brought forward by country tends to overstate holdings by international financial centers, and understates holdings by other countries. For this reason the country distribution below is presented as of year-end 1994.
| Country | 1978 | 1984 | 1989 | 1994 |
|---|---|---|---|---|
| Japan | 12 | 28 | 180 | 230 |
| United Kingdom | 13 | 43 | 108 | 168 |
| Germany | 9 | 30 | 58 | 168 |
| Canada | 8 | 22 | 69 | 58 |
| Switzerland | 13 | 22 | 35 | 57 |
| Middle East Oil Exporters | 19 | 45 | 54 | 45 |
| British West Indies | * | 2 | 7 | 37 |
| Taiwan | * | * | 13 | 34 |
| Singapore | * | 6 | 13 | 34 |
| Belgium | N.A. | N.A. | N.A. | 32 |
| Rest of World | - | - | - | 319 |
| Unknown | * | 7 | 122 | 161 |
| Total | 99 | 268 | 847 | 1,244 |
Note: N.A. means no data is available
* means greater than zero but less than the minimum amount presented in the table
As can be seen, Japan and the United Kingdom have maintained their positions as the top portfolio investing countries in U.S. securities. However, the rate of growth for Japan has decreased significantly. Between 1984 and 1989, Japanese holdings increased from $28 billion to $180 billion, or over 500%. Between 1989 and 1994 their holdings increased by only 28%.
On the other hand, holdings of the Middle East Oil Exporting countries (Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) decreased from $54 billion to $45 billion. In 1984, these countries together held 17% of foreign holdings of U.S. long-term securities. By 1994, their holdings represented less than 4% of the total held by foreigners.
The Unknown line is largely Eurobonds held in bearer form for which no ownership information is available. The level of Eurobond holdings has increased significantly since the 1984 survey as the size and importance of the Eurobond market has increased.
In order to collect timely, accurate information on holdings of U.S. long-term securities by country of foreign holder, the United States would have to collect ongoing information on the level of foreign holdings of U.S. securities, instead of the current practice of collecting ongoing information on purchases and sales only, while measuring positions only once every five years. Unfortunately, collecting information in this manner would be considerably more expensive than current practice.
Concentration of Foreign Equity Holdings
The following table shows foreign equity holdings in the 500 largest U.S. firms. Generally speaking, the larger the U.S. business enterprise, the higher the percentage of foreign ownership.
Overall, foreigner investors owned 5.6% of the total U.S. equity market as of year-end 1994, but owned 8.5% of the 50 largest companies, and 7.5% of the 500 largest companies.
| Company Size | % of Voting Equity |
|---|---|
| The 500 largest in groups of 50 each: | Foreign Owned |
| 1st 50 | 8.5% |
| 2nd 50 | 7.1% |
| 3rd 50 | 6.7% |
| 4th 50 | 6.6% |
| 5th 50 | 6.3% |
| 6th 50 | 7.2% |
| 7th 50 | 6.2% |
| 8th 50 | 8.4% |
| 9th 50 | 5.5% |
| 10th 50 | 5.0% |
| Top 500 | 7.5% |
| All U.S. Companies | 5.6% |
Company Size in the above table was calculated based on the total market value of voting equity securities as of year-end 1994. Mutual funds are excluded.
The preference of foreign investors for larger U.S. firms is not surprising. These firms are far better known to foreign investors, as many of them are multinational corporations doing business around the world. Further, there is much more information in the foreign financial press on larger firms than on smaller ones. In addition, larger corporations are much more likely to list their stocks on foreign securities exchanges as well as on U.S. exchanges.
The next table compares the concentration of foreign holdings according to company size in 1974 and 1994 to see if there has been a change in investment patterns over this period. While the preference for larger U.S. companies remained strong in 1994, it was noticeably less than in 1974. In 1974, over 55% of all foreign investment in U.S. equities was invested in the 100 largest U.S. companies, and over 84% was invested in the 500 largest companies. In 1994 the comparable figures were 41% and 64%. The increased availability of financial information during this period has probably contributed to the trend away from holdings in the largest companies.
| Companies by Asset Size Groups | Foreign Ownership of Voting Equity | |||
|---|---|---|---|---|
| The 500 largest | 1974 | - | 1994 | - |
| in Groups of 100 | Amount | Percent of Total | Amount | Percent of Total |
| 1st 100 | 13.1 | 55.2 | 163.0 | 41.0 |
| 2nd 100 | 3.4 | 14.4 | 38.7 | 9.7 |
| 3rd 100 | 1.4 | 6.0 | 24.2 | 6.1 |
| 4th 100 | .8 | 3.2 | 9.7 | 2.4 |
| Top 500 Cumulative | 20.0 | 84.3 | 253.3 | 63.7 |
Industry Distribution of Foreign Investment
The table below shows foreign holdings over time in broad industry categories. As can be seen, foreign investment has increased with time in all sectors of the U.S. economy. Between 1989 and 1994 the only area in which foreign investment decreased was in Transportation and Public Utilities.
| Industry | 1974 | 1978 | 1984 | 1989 | 1994 |
|---|---|---|---|---|---|
| Agriculture | * | * | * | * | * |
| Mining | 4 | 2 | 8 | 12 | 24 |
| Construction | * | 1 | 1 | 1 | 2 |
| Manufacturing | 23 | 35 | 73 | 210 | 233 |
| Transportation & Public Utilities | 5 | 7 | 15 | 47 | 43 |
| Wholesale & Retail Trade | 2 | 3 | 10 | 31 | 39 |
| Finance, Insurance & Real Estate | 6 | 6 | 36 | 171 | 250 |
| Services | * | 1 | 5 | 29 | 48 |
| Government | 26 | 44 | 119 | 336 | 578 |
| Unclassified | * | * | 1 | 12 | 27 |
By industry sector, foreign investment patterns have remained fairly constant, with the Government, Finance and Manufacturing sectors attracting the most investment over the past 10 years. However, over this period investment in the Finance sector has grown faster than the other sectors. This is due in large measure to the development of asset-backed securities (e.g., bundling and securitizing home mortgage loans or credit card receivables), which are Finance sector products.
More Information
Additional information on this topic can be obtained by calling (202) 622-2240 and requesting a copy of the report Foreign Portfolio Investment in the United States as of December 31, 1997.