Now that my lack of knowledge has been established, do I (we) have reason to be concerned about the amount of foreign investment in the stock market?
According to an NPR report, it’s up to (if I heard right) seven trillion dollars today, from about $300 million just a few years ago. (That sounds way high, maybe the report said billion, but even so, it’s a goodly sum.) The report says foreign investors are 20% of the market.
This makes me nervous, and it’s hard to explain why without sounding like a rube. I don’t know why someone would invest outside their own country. Well, of course, it’s to make a profit, but if I lived in Europe or South America, I’d want to keep my money “at home.”
Are most foreign investors like us? Just ordinary people who contribute to 401-Ks and IRAs and mutual funds without knowing where every penny is going?
Is our money also being invested in other countries?
Am I a foreign investor and don’t know it?
Is it likely or possible that some of these foreign investors have big enough chunks to cause problems in the stock market if George W. does something they don’t like?
(And did everyone else’s 401-K take a big hit last quarter? I’m thinking of getting out for awhile.)
Well, most foreign investors aren’t quite “just folks”. To oversimplify drastically, in most places (like, say, Europe and South America), it’s difficult to make a buck (or euro, or peso) unless you’re already rich and well-connected. This is not to say that all foreign investors are the local equivalents of Bill Gates and Donald Trump, but if you were to compare the incomes and net wealth of foreign buyers of American stocks with those of American buyers of American stocks, you’d find that they were quite a bit higher.
And, yes, Yankee dollars go into both foreign markets and foreign properties. Have for a few decades; in the early '90s, I wrote some software to balance portfolios of non-American stocks against indexes. Remember that the rest of the industrialized world got pounded to rubble in WWII. The lingering effects of that ended about a generation ago, but we did get a head start.
As to being a “stealth” foreign investor: got any money in ADRs or EAFE index funds? (You don’t have to tell us.) Those are the two most likely forms of foreign investment for the small investor.
As for 401-Ks taking a hit, the markets took a major hit last year; the last nine months of the year were a definite bear market :(.
Nope, certainly less to worry about that than the amount of money being borrowed by US investors to invest in US stocks. Check out the figures on the amount of margin loans the US has.
In a word, diversification. If you want to have balanced international portfolio you’d have 45-60% in the US, 25-35% in Europe, 15-20% in Japan and spread the residual around the other markets. Might even put 2% into Australian stocks.
Yep, lots and lots and lots of it … trillions.
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Am I a foreign investor and don’t know it?
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Depends on which mutual fund you are in. I guess a fair proportion of the mutual funds are excusively focused on the US domestic market. Ask them.
In theory yes, just like US investors can and have pulled their funds out of other countries with dire effects. From a practical perspective, and if US liquidity is there, it’s not a cause of significant concern for your market.
Funds will leave US if there is a safer or more lucrative haven elsewhere. A lot of Asian funds that were shifted out around the time of the Asian Crisis went into the US market, or more particularly US bonds. As/when these countries recover the funds will be repatriated. Also Japan has been tanking like a sick puppy for a couple of years. A return to growth will see funds flow back there.
If GWB was to start making hotile noises and threaten currency controls on foreign investment, that might spook the horses. But unless he’s planning a full scale war, I can’t see that happening.
