Global Investment Assets Flowing into the US Market

900 Billion USD Inflows into US Mutual Funds and ETFs in H1
Foreign Holdings of Treasury Bonds in May Reach Highest Since February Last Year

[Asia Economy New York=Correspondent Baek Jong-min] Global investment funds are flocking to the US stock and bond markets. This reflects expectations that the US economy is rapidly recovering from the COVID-19 crisis, leading to increased investment in US financial products.

The Wall Street Journal (WSJ) reported on the 25th (local time), citing data from financial information firm Refinitiv Lipper, that the amount invested in US mutual funds and exchange-traded funds (ETFs) in the first half of this year reached $900 billion. This is the highest level since 1992 and exceeds the amount invested by global investors in funds outside the US during the same period.

From January to May, more than $100 billion flowed into US funds every month. The investment volume in May reached $168 billion. Although in June, investment in US funds was only $51 billion while inflows into overseas funds reached $93 billion, causing a reversal, this is not seen as a long-term trend change.

This year, the US stock market's growth rate overwhelmingly surpasses that of other countries. The S&P 500 index has surged 17% since the beginning of the year. Compared to Germany's DAX index rising 14% and Shanghai Composite Index increasing 2.2%, the US stock market's returns are clearly ahead. Funds are also flooding into US Treasury bonds. According to the US Treasury, foreign holdings of US Treasury securities in May reached the highest level since February last year. This indicates that overseas investors have been behind the recent strength, including the decline of the US 10-year Treasury yield to as low as 1.18%.

According to fund data provider EPFR, as of the first half of this year, the proportion of investment in US bonds among overseas-invested bond funds reached 25%. At the end of last year, the proportion was 23%, marking a sharp increase of 2 percentage points in just six months. Compared to the 10% US bond proportion in 2019, the recent situation is even more striking.

Daniela Mardarlovich, head of US bonds at Macquarie Asset Management, said, "There is tremendous demand for bonds denominated in US dollars." She explained that due to accommodative monetary policies worldwide, investors with increased capacity are analyzing that the US is the best investment destination.

With negative yields on government bonds in countries like Germany, the still relatively high yields on US Treasury bonds and positive future outlook expectations are also driving investment inflows.

According to a survey conducted by WSJ, the US economic growth rate is expected to reach 6.9% this year. This surpasses the growth rates of most developed countries as well as emerging economies.

Experts predict that despite the global spread of the Delta variant and potential changes in the Federal Reserve's monetary policy, the US stock market will not derail from its upward trend.

In Bank of America's (BoA) July survey, global fund managers showed increased preference for US stocks, while positive evaluations of Europe and emerging markets declined. Relatedly, investment bank Goldman Sachs expects overseas investors to purchase $200 billion worth of US stocks this year.

Some analysts also attribute the increased investment in US financial assets to the reduced hedging costs against exchange rate fluctuations due to the decline in the dollar's value.