ACTV - The World Is Overweight U.S. Assets

2024-04-17 03:45:00 ET

Summary

• While the U.S. remained a net debtor to the world in aggregate because foreign central banks still owned sizeable amounts of U.S. Treasuries, it became a sizeable net creditor to the private sector globally.
• As a share of gross domestic product, the U.S. has shifted from overweighting foreign assets to the tune of 15% GDP to now underweighting foreign assets in the vicinity of 40% GDP.
• Recent U.S. growth and equity outperformance is validating the overweight position.

By Anujeet Sareen, CFA

During the 2000s, following the U.S. equity bear market and the rise of China, the U.S. private sector invested heavily overseas to capitalize on more attractive investment opportunities. Over time, this trend led to a substantial improvement in the U.S. net income balance - namely, the difference between what the U.S. earns on its investments overseas minus what it pays to foreign investors in U.S. assets (see Exhibit 1). While the U.S. remained a net debtor to the world in aggregate because foreign central banks still owned sizeable amounts of U.S. Treasuries, it became a sizeable net creditor to the private sector globally. For the purposes of understanding prospective capital flows and market implications, what matters are the decisions of private sector entities, and by 2012, the private sector held a sizeable short position in the U.S. dollar ((USD))....

For further details see: