De-Dollarization vs. Reality: Why Foreign Investors Still Favor US Equities
Recently, there has been considerable discussion about de-dollarization—the idea that global financial systems may shift away from the US dollar.
However, data from Topdown Charts presents a more nuanced perspective (see the image). Despite the rising concerns about a decline in American economic dominance, foreign investors continue to hold significant positions in US financial assets, particularly equities.
Foreign Ownership Remains Near Historic Highs
The relevant data shows that foreign holdings of US financial assets, especially equity allocations, are currently at their highest levels in the past 75 years. Even after previous downturns, such as the dot-com bust, which saw a decline from 50% to 20%, foreign investment in US markets has consistently rebounded and increased over time.
Reserves Are Diversifying, but Equities Remain Attractive
While it is true that central banks are diversifying their foreign reserves—favoring other currencies and gold over the US dollar—this trend does not appear to be diminishing global investors’ interest in American stocks. The main reason is straightforward: the US is still home to the world’s most innovative companies and leading tech giants.
Innovation Continues to Attract Global Capital to the US
As sectors like AI, cloud computing, and biotechnology continue to evolve in the US, it becomes increasingly challenging for other regions, including China, to replicate that level of consistent innovation. Therefore, even if dollar-denominated reserves decline, global capital is expected to keep flowing into American equity markets.
Two Trends Can Coexist
This data underscores an important distinction: de-dollarization in central bank reserves can coexist with strong foreign demand for US equities. Although trade and reserve patterns may change, the US stock market—driven by innovation and long-term growth—remains an appealing destination for international capital.
What are your thoughts on how de-dollarization might unfold in the coming years? Feel free to share your views in the comments below! If you found this blog post helpful, don’t forget to SHARE it with your friends!
