High Foreign Investment in the U.S. — Will It Last?

This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing how different types of foreign investment may impact the U.S. economy:

According to data from the International Monetary Fund, the United States received almost one-third of all global foreign investment from 2021 to 2023. This compares with an average of just 18% before the pandemic. The dramatic increase is even more remarkable considering widespread concern about the dominance of the U.S. dollar as a global currency.

By contrast, China received just 3% of foreign investment from 2021 to 2023, a significant drop from an average of 7% in the decade ending 2019. Investment in other emerging economies also declined as the United States dominated the global investment picture. While this imbalance contributed to an already strong U.S. economy, it weakened emerging economies that are more dependent on foreign investment.

Foreign investment falls into two broad categories of capital inflows from a foreign individual, company, or government. Foreign portfolio investment involves buying securities, while foreign direct investment involves buying an ownership stake in a business enterprise or starting a new business.

Buying U.S. Securities

In the year ending June 30, 2023 (most recent data), foreign portfolio holdings in U.S. securities totaled almost $26.9 trillion, an increase of about $2 trillion from the previous year. Part of this increase was likely due to gains in the U.S. stock market, but foreign capital was also drawn by high interest rates offered by U.S. Treasury securities and other fixed-income investments.

The largest foreign holders of U.S. securities are in the United Kingdom, Japan, the Cayman Islands, Luxembourg, and Canada. The heavy holdings in the Cayman Islands and Luxembourg are due to their…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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