Foreign investors flee US securities

Foreign investors flee US securities

www.ft.com

Foreign investors slashed their holdings of US securities by a record amount as the credit squeeze intensified, according to the latest Treasury figures.

The Treasury International Capital report – known as the Tic – for August will be closely watched because it appears amid growing concerns about the weakness of the US dollar, which hit a record low recently against a basket of major currencies.

“The bad news is that [the data] plainly show how vulnerable the dollar is to a continuation of the credit crunch-risk averse environment,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital. “There is no way to get away from the lack of corporate bond inflows, the foreign selling of US equities and the countervailing strong US purchases of foreign equities and bonds.”

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[edit on 17-10-2007 by manson_322]

The Treasury said also net sales of US market assets – including bonds, notes and equities – were $69.3bn in August after a revised inflow of $19.5bn during July. The August outflow exceeded the previous record decline of $21.2bn in March 1990.

Until now, US policymakers have appeared relatively relaxed about the dollar’s decline, since there has been little sign to date that this has been been triggered by a broader global aversion to US assets. However, that attitude could change if signs emerge in the coming months that non-US investors are becoming more nervous about holding dollar assets, as a result of the recent credit squeeze


If foreign investors do not return to buying equities, it is obvious that there will be a capital flight from the US that will lead to a dollar crisis.”



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