Investing.com-- Foreign holders of U.S. assets are under scrutiny as trade policy uncertainty stirs fears of a rapid sell-off. But JPMorgan’s latest research finds foreign allocations to U.S. assets are far from excessive, casting doubt on the idea that overseas investors are dangerously overweight American markets.
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“We are skeptical of the idea that foreign investors hold too much of US assets,” JPMorgan analysts said in a recent note, citing research showing foreign investors are surprisingly underweight U.S. assets.
Despite the large dollar figures often cited, the bank notes that allocations to U.S. assets typically stand at just 10–20% of the total financial assets of households outside the U.S. This is well below the U.S. weight in global equity and bond indices—over 60% in the MSCI ACWI and about 50% for USD-denominated bonds. In other words, foreign investors are actually underweight U.S. assets relative to global benchmarks.
There are outliers: Norway and Switzerland, whose sovereign wealth funds are overweight U.S. assets due to their mandates. But as JPMorgan points out, “these two entities follow global index benchmarks, so they largely accept whatever weight on US assets markets set, rather than actively trying to diverge from market weights.” No major changes are anticipated in their allocations.
Looking beyond Norway and Switzerland, the countries with the most exposure to U.S. assets are Canada, the Euro area, Taiwan, and Japan. Meanwhile, China, South Korea, India, and Brazil are among the least exposed. JPMorgan does, however, flag that custodial bias in U.S. TIC data might mean some exposures are underrepresented, but the overall picture remains: most foreign investors are not dangerously overexposed.
Exposure has gradually increased in recent years, driven by outperformance in U.S. equities and steady flows into U.S. bonds. For both the Euro area and Japan, about half of their foreign portfolio investments are allocated to the U.S., though this is largely a function of global index composition and revaluation effects.
Despite the headlines, JPMorgan’s research suggests that fears of foreign investors being dangerously overweight U.S. assets are overblown. While there is potential for equity selling from rebalancing by balanced mutual funds, pension funds, and sovereign wealth funds, these are routine portfolio adjustments—not a wholesale flight triggered by trade policy jitters.
“Thus far, there is also little indication of either increased demand for hedging dollar exposures in cross-currency basis swaps (beyond ongoing wide levels in Taiwan) or selling of US assets by foreign investors,” JPMorgan said.
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