US asset investment surge raises dollar worries

MILES JOHNSON | January 02, 2018

US asset investment surge raises dollar worries
A thought to begin the year with: the world has never been more heavily invested in US assets. The question that investors in stocks, bonds and commodities must ponder is whether, as previous historical examples have proven, this is a flashing warning signal that a deep and prolonged bout of US dollar weakness is on its way. If this turns out to be the case, then it will have far-reaching consequences for all manner of financial assets in 2018. Russell Clark, partner at hedge fund manager Horseman Capital Management, has noted how the so-called net international investment position (NIIP) of the US, which in effect measures the net assets of a nation against the rest of the world, has been significantly deteriorating in recent years. So severe has been this widening between the value of US external financial assets versus its liabilities, Mr Clark notes, using data from the Bureau of Economic Analysis, that US foreign direct investment has fallen into deficit for the first time since 2000. This joins an already sharp deficit in portfolio investment in financial assets, driven by massive foreign participation in US stocks and debt. Foreign investment in US equities as a percentage of gross domestic product has more than doubled from below 15 per cent before the financial crisis to more than 35 per cent today.

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