After rushing to the exits in August, foreign government and private investors poured a net $257.38 billion into U.S. stocks and bonds in...

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After rushing to the exits in August, foreign government and private investors poured a net $257.38 billion into U.S. stocks and bonds in the fourth quarter, a sharp jump from $45.31 billion in the third quarter, according to the most recent data from the U.S. Treasury Department.

In December, foreigners bought $69.09 billion in long-term U.S. securities, a slight decline from $70.3 billion during November, but a reversal from the $35.95 billion in net selling in August, when the credit crunch spooked investors. That was the first monthly outflow from U.S. long-term securities since 1998.

By buying U.S. Treasurys, foreigners help fund our huge budget deficit. If their appetite weakens, the government could be forced to raise interest rates to attract more buyers. This, in turn, could choke off U.S. economic growth and hurt stock prices. Brian Bethune, U.S. economist for Global Insight, says fourth-quarter inflows “are more than enough to cover the U.S. external funding requirement.”

Barrington Research Associates analyst Alexander Paris, though, cautions that foreign inflows may already be losing steam. In December, foreign private investors, which made up nearly half of purchases, were net sellers of Treasurys and government agency bonds, such as those issued by mortgage-finance companies Fannie Mae and Freddie Mac.

But, on the positive side, private investors did buy U.S. equities. “This provides support for the U.S. stock market and capital-spending sector,” Paris says.

Some of the highest-profile investments have been by government-run sovereign wealth funds. In December, for example, Merrill Lynch and Morgan Stanley said they sold multibillion-dollar stakes to a Singapore and Chinese fund, respectively. Such deals, though, have raised fears in Congress about foreign control.