Going Global: Investors diversify abroad
During 1990–1997, private capital flows in the form of portfolio equity accounted for 16.4 percent of all flows, compared to just 0.3 percent during 1973–1981. Prior to the Asian crisis in 1997–1998, U.S. investors’ purchases of foreign securities ran at a record pace in the 1990s. Through 1998, U.S. investor acquisitions of foreign stocks accounted for nearly one third of all foreign stock acquisitions by global investors. New purchases averaged $71.1 billion per year in the 1990s, compared with an average $7.7 billion per year in the 1980s. Of this total, U.S. investors purchased an average $31.1 billion per year of foreign equity and $31.9 billion per year of foreign bonds.
In the early 1990s, emerging markets were especially attractive to U.S. investors, but in 1996 and 1997 the larger markets, such as those in developed Europe and Japan, became new favorites. Although new acquisitions of foreign stocks and bonds have tumbled since the 1997 Asian crisis, foreign securities purchases will remain a key element of institutional and individual investor strategy to diversify portfolios and increase returns.
While U.S. investors reduced their acquisitions of foreign securities in the late 1990s and emphasized domestic companies and other financial products, foreign investors—seeking a safe haven and higher returns than were available in their domestic markets—turned to the American markets.