Japan now has the highest portfolio investment assets in the United States for any foreign country. Data compiled by Finbold.com shows that Japan’s asset investment in the US now stands at $1.67 trillion.
The data further highlights that the Cayman Islands is the second with an investment worth $1.64 trillion followed by Luxembourg at $1.20 trillion. The United Kingdom also has significant investments in the states with assets worth $1.15 trillion while Canada closes the top five categories with investments valued at $1.13 trillion.
Ireland also has assets over one trillion at $1.04 trillion. Netherlands investments stand at $542 billion followed by Germany’s $438 billion. On the other hand, Singapore’s investments stand at $371.57 billion with France closing the top ten categories at $354.64 billion. In total, these countries’ investments in the US are $9.56 billion. Notably, the top ten category is dominated by European countries.
Understanding portfolio investment in the US
Elsewhere the value of total investments in the US globally is $11.66 trillion, meaning that the top ten countries account for 82 percent of this figure. It is worth noting that the assets in the portfolio comprise equity and investment fund shares, long-term debt securities and short-term debt securities.
Foreign portfolio investment assets show up in a country’s capital account. It is also part of the balance of payments which measures the amount of money flowing in and out of a country over a given period.
It is no surprise that Japan is the leading foreign investor in the United States as both countries enjoy deep ties. The State Department at one point lauded the Japanese system and policies as an attractive factor.
Foreign investments in the United States are mostly concentrated in the U.S. manufacturing sector. Additionally, there is also a sizable investment in finance and insurance.
Foreign investments in the United States increases the economy of both countries. In this case, the United States has an inflow in the capital, which translates to a higher number of jobs and increased productivity. On the other hand, investing in a foreign country benefits from the dividends of such investments.
However, this type of investment carries risks. These risks are magnified by the regulatory uncertainty that arises from the fact that two legal systems are involved. This can lead to political pressure, giving room for trading wars that can hurt the global economy at large.
Why countries invest in the United States?
Most countries chose to invest in the United States due to several factors. Many choose to purchase U.S. portfolio investments as a way of benefiting from the highly developed, liquid, and efficient U.S. financial markets.
Additionally, the US strong corporate governance and institutions are attractive to many. Notably, these factors that are seen as the strength of the United States have shown vulnerabilities, especially during market meltdowns.
Furthermore, investing in the United States is also seen as a means of diversifying risk, especially if returns in U.S. financial markets have little correlation with returns in the home country’s financial markets. Furthermore, foreign countries put their money in the US due to close historical ties like the relationship with Japan that has remained healthy for decades.
It is worth noting that foreign investors in the United States in some cases have earned lower returns on their U.S. investments in recent years compared to what U.S. investors have earned abroad. The returns remain lower even after removing the effects of exchange rate movements and government investments. However, most still prefer to invest in the states.