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Chart Of The Day - Foreign Equity Allocations
Global investors have historically high allocations to US equities (same as dot com)
Foreigners Love US Equities: The latest weekly chartstorm showed a few longer-term charts on the US stock market with extreme readings, and today’s chart only adds to the list.
Technical note: the chart uses data from the US Federal Reserve Flow of Funds report, and takes “Rest of World” (RoW) holdings of US equities as a proportion of all RoW holdings of US financial assets. Or aka, allocation to US equities. It’s basically the same method from last week’s chart on US household allocations to equities, but for foreigners.
At 57.3% as of Q2 2023, it is exactly on par with the dot com peak of 57.3% in Q1 2000 (albeit is slightly lower than the all-time-high of 59.2% in Q4 2021 i.e. when the US stock market peaked).
In terms of takeaway, my eyes are drawn to the two contrasting datapoints of the peak in 2000 and trough in 2009 — clearly this is a type of sentiment indicator, and denotes (over?)confidence by global investors in US equities. I would put it in the same basket as those extreme valuation and relative performance chart readings… not necessarily an indication of an imminent market downturn as such, but definitely smoothing you see late in the cycle.
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