The United States has long been a magnet for global investment, with foreign investors holding trillions of dollars in U.S. securities such as Treasury bonds, corporate stocks, and real estate. These investments are a testament to the country’s economic stability and market potential, providing critical support for government funding and corporate growth. However, the landscape of foreign investment is evolving, influenced by shifting global dynamics, geopolitical tensions, and economic uncertainties. Take a look as we explore the largest foreign holders of U.S. securities, why international investors are drawn to the U.S. market, and the potential risks that could impact future investment flows.
According to data from the International Monetary Fund, the United States received almost one-third of all global foreign investment from 2021 to 2023. This compares with an average of just 18% before the pandemic. The dramatic increase is even more remarkable considering widespread concern about the dominance of the U.S. dollar as a global currency.1
By contrast, China received just 3% of foreign investment from 2021 to 2023, a significant drop from an average of 7% in the decade ending 2019. Investment in other emerging economies also declined as the United States dominated the global investment picture. While this imbalance contributed to an already strong U.S. economy, it weakened emerging economies that are more dependent on foreign investment.2
Foreign investment falls into two broad categories of capital inflows from a foreign individual, company, or government. Foreign portfolio investment involves buying securities, while foreign direct investment involves buying an ownership stake in a business enterprise or starting a new business.
Buying U.S. securities
In the year ending June 30, 2023 (most recent data), foreign portfolio holdings in U.S. securities totaled almost $26.9 trillion, an increase of about $2 trillion from the previous year.3 Part of this increase was likely due to gains in the U.S. stock market, but foreign capital was also drawn by high interest rates offered by U.S. Treasury securities and other fixed-income investments.4
The largest foreign holders of U.S. securities are in the United Kingdom, Japan, the Cayman Islands, Luxembourg, and Canada. The heavy holdings in the Cayman Islands and Luxembourg are due to their popularity as jurisdictions for private equity funds.5
China, which ranks seventh in total U.S. portfolio investment, has low U.S. equity investments but is second to Japan in holding long-term Treasury securities — causing some concern that China might jolt U.S. markets by “dumping” U.S. debt. However, this is unlikely, because it would drive down the value of the dollar against the Chinese yuan, which would make Chinese export goods more expensive and therefore less competitive.6–7
Owning U.S. companies
While foreign ownership of U.S. securities brings capital flows that can help strengthen the U.S. economy, these ownership positions can change quickly as they are bought and sold on the markets. By contrast, foreign direct investment (FDI) is a more lasting commitment by a foreign entity to do business in the United States. FDI totaled $5.39 trillion at the end of 2023, an increase of $227 billion over the previous year.8
The U.S. Department of Commerce breaks FDI into three categories: acquisitions, new businesses, and business expansion. Establishing and expanding businesses are called greenfield investments, because they create new opportunities in the U.S. workforce and new capacity within the U.S. economic engine. For this reason, greenfield investments are the most important type of FDI. But they are also the smallest component, averaging about 5% of all foreign direct investment from 2015 to 2022.9
More than 40% of FDI in the United States is in the manufacturing sector.10 Three government initiatives aimed at encouraging investment in key manufacturing industries — the 2022 Inflation Reduction Act, the Infrastructure Investment and Jobs Act, and the CHIPS and Science Act — have stimulated both domestic and foreign-funded projects.11 A preliminary agreement by a Taiwan-based company to invest more than $65 billion in three semiconductor plants in Phoenix, Arizona, aided by up to $6.6 billion in funding under the CHIPS and Science Act, would be the largest greenfield investment in U.S. history.12
Based on the location of the parent company, the top countries for FDI are the Netherlands, Japan, Canada, and the United Kingdom. The Netherlands ranks high only because it is the domicile for many large holding companies. Based on the country of the ultimate beneficial owner — the entity at the top of the global ownership chain — the top investing country is Japan, followed by Canada, Germany, and the United Kingdom. China is a minor player in FDI.13
While the U.S. Treasury Department does not place nationality restrictions on buying or selling securities (apart from certain sanctions), large transactions with foreign entities must be reported by the U.S. broker/dealer. Certain foreign direct investments and real estate transactions may be reviewed for national security concerns by the multiagency Committee on Foreign Investment in the United States.14
Risks to future investment
Now that the Federal Reserve has begun lowering interest rates, the U.S. edge on fixed income investments might become less significant, but the strength of the U.S. stock market may continue to draw foreign portfolio capital, while government incentives for new manufacturing projects could continue to drive foreign direct investment.
The biggest threats to future foreign investment are the untamed U.S. deficit and the potential for changing trade policies and political unrest. Any of these could make the U.S. business and investment climate less appealing.15 For now, however, much of the world is putting their money to work in the United States.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities fluctuates with market conditions. If not held to maturity, they could be worth more or less than the original amount paid.
The bottom line is that foreign investment plays a crucial role in supporting the U.S. economy, with major stakeholders like China, Japan, and Europe contributing significantly to the demand for U.S. securities. While this influx of global capital underscores the appeal of the United States as a stable and lucrative market, it also highlights potential vulnerabilities. Geopolitical tensions, rising interest rates, and shifts in global economic priorities could all impact future investment flows. To maintain its position as a leading destination for foreign investment, the U.S. must navigate these challenges carefully while fostering policies that promote economic stability and growth. Ultimately, the interplay between global investors and the U.S. market will remain a key factor shaping the nation’s financial future.
- The U.S. received nearly one-third of all global foreign investment from 2021 to 2023 – up from an 18% pre-pandemic average.
- Foreign portfolio investment means buying U.S. securities (stocks, bonds). Foreign direct investment (FDI) means buying or building a business.
- Total foreign portfolio holdings in U.S. securities reached $26.9 trillion as of June 2023.
- The largest foreign holders of U.S. securities are in the UK, Japan, the Cayman Islands, Luxembourg, and Canada.
- China holds significant U.S. Treasury debt but is a minor player in direct business investment.
- FDI totaled $5.39 trillion at the end of 2023 – with over 40% concentrated in U.S. manufacturing.
- Key risks to future foreign investment include the U.S. deficit, shifting trade policy, and geopolitical uncertainty.
Frequently Asked Questions
Why do foreign investors put money into the U.S.?
The U.S. offers a combination of economic stability, deep and liquid markets, and historically strong returns that is hard to match globally. During periods of elevated interest rates, U.S. Treasury securities also attract significant foreign capital. From 2021 to 2023, the U.S. captured nearly a third of all global foreign investment – a dramatic increase from prior years.
What is the difference between foreign portfolio investment and foreign direct investment?
Foreign portfolio investment means a foreign investor buys U.S. securities – stocks, bonds, or other financial assets. These positions can change quickly as they are bought and sold on the markets. Foreign direct investment (FDI) is a more lasting commitment – buying an ownership stake in a U.S. business or building a new one from the ground up.
Which countries hold the most U.S. securities?
The largest foreign holders of U.S. securities are based in the United Kingdom, Japan, the Cayman Islands, Luxembourg, and Canada. The Cayman Islands and Luxembourg rank high due to their use as domiciles for private equity funds. China ranks seventh overall but is second only to Japan in holding long-term U.S. Treasury securities.
Could China “dump” U.S. Treasury bonds and hurt the economy?
It’s unlikely. If China were to sell large amounts of U.S. Treasuries, it would drive down the value of the dollar relative to China’s yuan – making Chinese exports more expensive and less competitive on the global market. That outcome would hurt China as much as the U.S., which is a natural deterrent.
What are the biggest risks to continued foreign investment in the U.S.?
The primary concerns are the growing U.S. deficit, potential shifts in trade policy, and geopolitical instability. Any of these could make the U.S. a less attractive destination for global capital. Falling interest rates may also reduce the appeal of U.S. fixed-income investments, though a strong stock market and government manufacturing incentives may help offset that.
In the Word
Therefore, if anyone is in Christ, the new creation has come: The old has gone, the new is here!
2 Corinthians 5:17
Isn’t it incredible to know that with Jesus, we get a fresh start? The old you – with all the guilt, regrets, and worries – is gone, and God is doing something brand new in your life!
Think of it like clearing out a cluttered closet to make room for something beautiful and fresh. God doesn’t just clean us up; He transforms us completely!
So, whatever is holding you back, let it go. Trust that God’s got something amazing in store for you. Walk in His love today, knowing you’re a new creation!
Sources: Broadridge Investment Management Solutions
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1, 2, 4, 15) Bloomberg, June 16, 2024
3, 5–6) U.S. Treasury Department, April 30, 2024
7) Investopedia, October 18, 2024
8, 10, 13) U.S. Bureau of Economic Analysis, July 23, 2024
9) U.S. Commerce Department, September 2024
11) U.S. Treasury Department, June 27, 2023
12) U.S. Commerce Department, April 8, 2024
14) U.S. Treasury Department, 2024