Inward investment fails to cover US deficit
news.ft.com
By Jennifer Hughes in London
Published: December 15 2003 22:04 | Last Updated: December 15 2003 22:04
Concern over the dollar rose again on Monday as Treasury data showed inward investment in October failed to cover the US current account deficit for a second month.
US equities jumped to 18-month highs following the capture of Saddam Hussein, but the data showed foreigners were selling US stocks as recently as October, suggesting investor appetite for Wall Street could be waning.
The blue-chip Dow Jones Industrial Average gained nearly 6 per cent in October, but outflows from US equities totalled $9.6bn in the month - the fourth consecutive net outflow. Flows have been positive in only two separate months this year.
US investors bought a net $8.3bn of overseas equities in October while foreign investors sold a net $1.3bn of US equities.
In the first 10 months of the year, net outflows from US equities have totalled $50.8bn, against a net inflow of $49bn for the whole of 2002.
Lara Rhame, currency strategist at Brown Brothers Harriman, said: "US investors have come off the sidelines into the US market, plus at the margins we're also seeing this interest in growth opportunities elsewhere."
Flows into Asian equities outside Japan were a record $8bn in October, while US buying of Tokyo stocks was still strong at $3.5bn. Expectations of a global recovery have fuelled overseas investors' interest in Asia's export-led economies this year.
Net portfolio inflows into the US - stocks plus bonds - totalled $27.7bn in October, well short of the $47bn needed to fund the deficit each month. Monthly inflows averaged $64bn in the first eight months of the year but slumped to $4.2bn in September.
Monday's report ended the early bounce the dollar had enjoyed after the capture of Mr Hussein. The US currency slid nearly two cents to a record low against the euro at $1.2323. Adam Cole, strategist at Credit Agricole Indosuez, said: "With little prospect of a cross-border M&A boom covering the gap as it did three years ago, the US needs portfolio flows on a much greater scale than this for the dollar to even stand still."
Bond flows continued to support the dollar, with a net inflow of $37.1bn. Of that, central bank holdings of treasuries rose by $18.7bn, reflecting continued intervention by Asian central banks to weaken artificially their currencies against the dollar. |
