Foreigners sold U.S. securities at peak of crunch

Foreigners sold a record amount of U.S. securities in August as a global credit crunch sparked an exodus from stock and bond markets, the Treasury Department said Tuesday.

In a separate report, the United Nations said that last year the U.S. was once again the favorite destination for companies investing in businesses outside their home countries.

The Treasury’s monthly report on foreigners’ transactions in domestic equities and long-term debt securities said overseas investors sold a net $34.9 billion of U.S. securities in August, compared with net purchases of $25 billion in July.

At the same time, U.S. investors were net buyers of $34.5 billion of foreign securities in August.

Combining the activity of foreign and U.S. investors, the nation had a net outflow of $69.3 billion in long-term securities -- the first monthly decline since 1998.

Including short-term assets such as Treasury bills and banks’ holdings of dollar-denominated securities, foreigners sold a net $163 billion in U.S. securities in August, compared with a $94.3-billion inflow in July.

Many foreigners dumped U.S. assets as rising mortgage defaults triggered a credit crunch over the summer that resulted in sharp declines in the value of stocks, corporate bonds and many other securities.

“It highlights the point that foreign investment isn’t an entitlement,” said Michael Woolfolk, currency strategist at Bank of New York Mellon.

But he and other economists said the decline was an aberration tied to a volatile period in global markets and didn’t suggest a longer-term trend.

Indeed, some analysts said U.S. securities may have been dumped simply because nervous investors wanted to raise cash and were unable to sell less-liquid foreign securities.

Foreigners sold a net $40.6 billion of U.S. stocks in August, compared with net purchases of $21.2 billion in July. A net $2.6 billion of Treasury securities were sold, compared with sales of $9.4 billion in July.

Chinese and Japanese investors decreased their holdings of U.S. government debt, while British investors increased theirs. Caribbean banking centers linked to hedge funds also boosted their stakes. The holdings of major oil-exporting countries were unchanged.

In its annual report, the U.N. said corporate foreign investment in the U.S. rose 74% in 2006 to $175.4 billion, almost double the worldwide growth rate of 38%. Britain, which received the most investment in 2005, was No. 2 last year at $139.5 billion. France was third with $81.1 billion.

The U.N. Conference on Trade and Development, which compiled the report, said such cross-border investments totaled $1.3 trillion last year, close to the record of $1.41 trillion set in 2000, before the technology bubble burst and the 9/11 attacks ushered in a global downturn.

Foreign investment in China fell last year for the first time in seven years to $69.5 billion from $72.4 billion in 2005.

Anne Miroux, the report’s lead writer, said the drop represented a return to normal investment levels for China, which is emerging as a significant foreign investor itself.

Chinese companies, many of them state-owned, invested $16.1 billion abroad last year, a figure that is likely to increase as the country looks to exploit its vast foreign exchange surplus.