The US Treasury provides exhaustive details of foreign holders of US securities in the period June 2007-June 2008. The data, which runs to 183 pages, might be dated but it’s intriguing all the same.
As Brad Setser over at CFR points out, it largely confirms China had become a major buyer of US equities in the period, a new emerging trend for the usually bond hungry command economy. As he explains:Foreign purchases of mutual funds – including, apparently, money market funds – are counted as equities in the US data. So there was a risk that the large rise in China’s equity holdings that I noted earlier (total equity holdings reached $99.548 billion) would stem from a big rise in China’s investment in US money market funds. That though didn’t turn out to be the case. Plain old stocks account for $97.645 billion of the $99.548 billion total. “Funds” only accounted for $1.743 billion of the total.
Overall, the following charts (click to enlarge) also reveal foreign entities were already decreasing the rate of their US government debt and agency debt purchases in the period — that’s before the blow-up of Fannie and Freddie and the subsequent repercussions. In total foreign holdings of US equities actually decreased by some $161bn to$3,000bn during the period, in large part reflecting price falls.
In short, the data confirms foreign entities began reversing their previous trend of buying ever greater numbers of US securities as far back as June 2008.
As the Treasury summarises:
In the previous survey as of June 30, 2007, total foreign holdings amounted to $9,772 billion. The increase in foreign holdings over the 12-month period from June 2007 to June 2008 — $550 billion — was considerably smaller than the increase recorded in each of the previous three surveys. Foreign holdings of equities decreased $161 billion to a level a little less than $3 trillion, in large part reflecting valuation losses from declines in stock prices over this period. However, foreign holdings of U.S. long-term debt securities also grew more slowly than in previous years, increasing only $487 billion to a level just below $6.5 trillion.
The exception to that trend though was US short-term securities which as the Treasury reports increased:
Foreign holdings of U.S. short-term securities increased $223 billion to $858 billion, a considerably larger increase than in previous years.
Ultimately, though, China was still among the biggest buyers in the period, increasing its holdings to $1,205bn vs $922bn the year before, and nearly overtaking Japan — with holdings of $1,250bn — as the biggest holder of US securities overall.
Related links:
Additional confirmation China bought US equities from mid-2007 to mid-2008 - Brad Setser
Downgrading the USA – FT Alphaville