Non for Europe, Oui for America

French investment in  the US has skyrocketed ever since a majority of French voters may have voted "Non" in terms of accepting an EU constitution. From Barrons Online:

Indeed, capital inflows from France have jumped sharply since May -- the same month the French citizenry voted "No" in the European Union constitutional referendum. Through the first eight months of 2005, net purchases of U.S. assets by French investors totaled $16.8 billion, greater than cumulative inflows over the entire first half of this decade ($16.4 billion). Apparently, despite tense U.S.-Franco relations, the French appetite for U.S. assets has never been greater.

Not exactly a vote of confidence in their referendum outcome. It also lends insight into the demographics of the vote. Those with money thus probably wanted a yes vote.

It's a fairly strong economic vote of confidence in the US, at least as a safer haven than France or Europe,  since A) it comes at a time when the general French opinion of the US is quite negative given the war in Iraq and B) it's happening even in the face of recent dollar strength. The article continues, pointing out that while the French are investing, "petrodollars" aren't being reinvested into the US like they used to:

We keep reading about all those petrodollars being recycled into the U.S., yet contrary to what's being reported in the media, petrodollar purchases of U.S. securities slowed dramatically in the second quarter. In fact, U.S. capital inflows from the oil producing nations totaled a miserly $3.5 billion in the second quarter of this year, a fraction of inflows in the first quarter ($21.5 billion) and fourth quarter of 2004 ($23 billion). Even Brazil, a market not typically known for its purchases of U.S. securities, sunk more money into U.S. dollar assets during the second quarter ($6.4 billion) than did the oil producers.

So while US investors are increasingly looking abroad, the US is still a foreign capital magnet thanks to far too much money just sitting around idle:

Given the massive global savings glut and the increasing ease by which capital transfers around the world, the U.S. remains a magnet for foreign capital. To say that the end is near for this debt-stretched nation is to disregard just how diverse U.S. capital inflows really are. U.S. capital inflows are not only about Japan, China and lately, petrodollars. The global savings pool is deep and diverse, a dynamic that keeps the world's largest debtor nation afloat.

Comments

[brad setser]

the oil numbers make no sense. the h2 data (q1 plus q2 data) on purchases of us securities make even less sense (total inflows into long-term US securities from Russia and oil exporters in asia are less than $7.5 b). or rather, they only make sense when you remember that the middle east invests in the us through intermediaries to avoid various us laws/ restrictions. look at the flows through london.

you have a point on the french flows, but remember, yield differentials also favor the USA, and europe (including france) is getting substantial inflows from the emerging world, so some of these flows are the byproduct of intermediation -- europe sells debt to the middle east in euros at 3 and invests in dollars at 5 ... that is true at least in the macro sense.

[Stalwart #2]

Thanks a lot for the comment. That's a good point on the oil numbers, it's always interesting to find out that there's more than meets the eye.

Nevertheless the dramatic fall in this number alone would then have to mean that there was a recent shift in the method by which this money was invested into the US, for it to hold true that the overall inflows remained didn't fall. From what you say this could very well be true.

In terms of French confidence, yes the yield difference is also probably a factor, but I still believe we can point to dollar confidence since it wouldn't take much depreciation in the dollar to wipe out the yield differential Europe, in the macro sense, would gain from the arbitrage. Also, just the massive shift of French money in the last 8 months compared to last 5 years would alone seem to imply more than an arbitrage opportunity.

[moncler doudoune]

He is a good friend that speaks well of us behind our backs.