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Foreigners sell record US financial assets in Aug

(WASHINGTON) International investors sold a record amount of US financial assets in August as tightening access to credit threatened economic growth and spurred an exodus from American equities.

Total holdings of equities, notes and bonds fell a net US$69.3 billion after an increase of US$19.2 billion in July, the Treasury Department said on Tuesday in Washington. Including short-term securities such as Treasury bills and non-market trades such as stock swaps, foreigners sold a net US$163 billion, compared with a gain of US$94.3 billion a month earlier.

Demand for US stocks overseas declined as the deepening housing recession and credit market turmoil threatened investment and hiring, slowing the economy.

‘There is acute uncertainty in the market,’ said Gabriel De Kock, chief currency economist at Citigroup Global Markets Inc in New York, before the report. ‘There are lots of people who are reducing their risk and taking money off the table.’

Economists predicted that international investors would buy a net US$60 billion of long-term securities in August, based on the median estimate in a Bloomberg News survey.

The Treasury’s reporting on long-term securities captures international purchases of US government notes and bonds, stocks, corporate debt and securities issued by US agencies such as Fannie Mae and Freddie Mac, which buy mortgages.

International holdings of US stocks fell a net US$40.6 billion, compared with net purchases of US$21.2 billion in July. The Standard & Poor’s 500 Index rose 1.3 per cent in August, while the Dow Jones Industrial Average gained 1.1 per cent.

International demand for Treasuries decreased by US$2.6 billion, compared with a loss of US$9.4 billion the previous month. The yield on the benchmark 10-year note in August averaged 4.73 per cent, compared with 5.04 per cent in July.

Holdings of agency debt increased a net US$9.6 billion after a US$8.7 billion net gain the month before.

US investors bought a net US$34.5 billion of overseas assets in August, after buying US$5.5 billion in July.

Private investors sold a net US$10.6 billion, compared with a net US$20.6 billion in purchases a month earlier. Official purchases, including those by central banks, fell by US$24.2 billion after an increase of US$4.4 billion in July.

Foreigners sold a net US$1.2 billion of corporate bonds, compared with a US$4.5 billion increase in July.

Some economists said that the difference between the US trade gap and securities purchased by foreigners is an indicator of how easily the nation can finance its external obligations. The trade deficit in August shrank 2.4 per cent to US$57.6 billion, the smallest since January, as exports climbed to a record, the Commerce Department said on Oct 11.

The US current account deficit, a broader measure of trade that includes investment income and transfers, narrowed to US$190.8 billion in the second quarter.

 

Source: Bloomberg (Business Times 18 Oct 07)

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