The US Treasury’s Foreign Portfolio Fixtures
As continuously tracked fund flight accelerated for a third month into September, the US Treasury published its preliminary annual survey of portfolio investment abroad charting a $1 trillion increase to almost $8 trillion as of end-2012. The breakdown was $5.3 trillion in equity and $2.3 trillion in long-term bonds, with the remaining $365 billion in short-term debt. Of the thirty countries itemized Brazil, Korea and Mexico finished in the top half receiving $150-200 billion each and China, India, South Africa and Russia took individually from $70-$120 billion. Stocks dominated for these listings and Brazil’s bond allocation also led at $65 billion. Europe, Japan, Canada and Australia were the chief destinations overall, and offshore centers in the Caribbean included could be tapped for both tax-advantaged developed and emerging market holdings. Israel and Singapore were high-income targets falling between categories, and Taiwan ranked just behind the Mainland with $90 billion entirely in shares due in part to its large MSCI weighting. The core European component is expected to strengthen this year with recession ending and the supranational Stability Fund now able to sell 20-year paper at 3 percent on good demand despite the sustained regional drop in private lending. Among the peripheral members under aid programs Portugal returned to growth in the last quarter as it prepares to rely again on commercial borrowing in 2014, although a precautionary package is widely expected before that date with debt/GDP well over 125 percent. Olive oil exports rebounded as the government coalition scrambled to stay intact with court rulings against the constitutionality of public pension reductions. Iberian neighbor Spain has a large stake in the outcome with major banks’ cross-border debt exposure as they grapple with double-digit NPL ratios. Summer tourism picked up there, and although residential property sales are off over 60 percent since the crisis foreign distressed asset firms are now negotiating to acquire chunks of the centralized disposal agency portfolio.
In Emerging Europe Hungary, Poland and Turkey have yet to appear in the US Treasury tabulation outside the rest of world broad grouping. According to central banks in the first two, foreign investors own 35 percent of local debt and have been unfazed by plans to convert hard-currency mortgages and private pension schemes. Turkey’s benchmark bond yield on the other hand breached 10 percent, and the lira 2 to the dollar, as non-residents shed $1 billion per month paring their position to under 30 percent. The monetary authority refuses to raise interest rates outright and claims a box of “special tools” within reach should regular interventions which have helped drain reserves 15 percent not reverse the tide. Short-term mainly private obligations are greater than the current $40 billion pool, and the damage from global military action against Syria may compound the existing refugee and trade crunches in a more sobering survey.
