What Are Foreign Investors Doing?
Frequent readers of my column know that I devote a significant amount of time
focusing on flow data, as this is the most accurate measure of investor
sentiment. Mainly, I report on domestic investor flows–institutional and
retail–which, just to recap, paint a neutral picture for equities. But today, I
will focus on foreign investor flows into US equities in order to examine how our friends overseas feel
about US equities.
According to the most recent data from the Federal Reserve, foreigners are
indeed warming up to the idea of owning US equities, but inflows from this
investor group still have a long way to go before they reach their historical
averages. So far this
year, foreigners have only purchased $71 billion worth of stocks. This
amount is roughly 52% of what it was during the same period last year and 20% of
what it was in the prior two years.
As can be seen in the chart below, foreigners have been good contrarian
investors–buying the top of the S&P 500 and selling the bottom. As
such, any meaningful appreciation in outsider buying of US stocks should serve
as a yellow light for US equity investors. Â
