Many Foreigners Betting U.S. Will Weather This Storm

Foreigners, who played a key role in U.S. prosperity by pumping trillions of dollars into U.S. Treasury bonds and corporate stocks and bonds, have not lost confidence in America’s position as the world’s preeminent safe haven, as demonstrated by their continued support for the dollar Wednesday.

But overseas investors--many of whom are familiar with terrorist attacks, political upheaval and financial chaos on their home turf--hope Americans themselves don’t sell off these same stocks and bonds.

For example, Jonathan Beard, managing director of GHK Hong Kong Ltd., a consulting firm, said, “This doesn’t shake my confidence in the U.S. The key thing would be what the reaction of Americans would be.”

And Kongkiat Opaswongkam, chairman of Bangkok, Thailand-based Asset Plus Securities Co., said he has no plans to pull out of the U.S. market. “I invest for the long term,” said Kongkiat. But, he added, he will be watching carefully when the U.S. markets reopen for signs the market is not heading for a tailspin.

Some Fear Sell-Off in Stocks

What foreigners fear most is that Americans, unnerved by the unprecedented attacks on U.S. soil, will panic when the stock markets reopen and cause a major sell-off. That in turn could depress the U.S. economy to a level that would prompt an exodus of foreign cash.

All foreign investors know what many Americans do not: That more than $600 billion in net new investments annually in U.S. securities has helped make life more prosperous for Americans in recent years.

It has helped foreigners too. Pension funds in Europe and governments and corporations in Asia hold vast sums in U.S. securities. Japan, for example, has more than $300 billion in U.S. Treasury securities in addition to billions invested in plants and operations in the United States. Germany has $87 billion in Treasuries, China $60 billion.

Not much of that money wants to budge, experts say. At Payden & Rygel, a Los Angeles investment firm, managing principal Scott Weiner spent Wednesday morning talking to pension fund clients in Europe. “They didn’t want to move out of U.S. investments but only to know about U.S. credit conditions” and whether the Federal Reserve would ensure ample funds to banks and capital markets to prevent firms running into difficulty for lack of cash.

In fact, the Fed and central banks in Europe and Japan have taken steps to ensure ample capital to businesses. Jeffrey Garten, president of Yale University School of Management and former U.S. secretary of Commerce, said that such Fed moves, coupled with the White House and Congress acting in unison, would “demonstrate U.S. resolve” and lead to the customary strengthening of the dollar that accompanies most crises.

Stephan-Gotz Richter, Washington-based publisher of the Globalist, an online newsletter, said Wednesday that European government and business officials are firm in their support of the U.S. “They see it as a case of ‘we hang together or we shall hang separately,’ ” Richter said.

Even if foreigners want to move their assets elsewhere, the options are limited at least for now. U.S. bond dealers were not making markets Wednesday. Some may open trading Thursday, but firms with operations in downtown New York may stay closed longer.

If U.S. investors do greet the markets’ reopening with waves of selling, that could lead to “some money coming out of the U.S. in portfolio flows, in a loss of confidence,” said Robert Conlon, chief investment officer for Investec Asset Management Asia in Hong Kong. But such money would not go into other currencies or investments, Conlon said. “It would normally go into cash. Cash is considered the safe haven.”

But there was no sign Wednesday of money moving out or lack of foreign confidence. U.S. markets’ size is an asset. “The U.S. market is the largest, most liquid by far,” said Charles Clough of Clough Capital, a Boston-based investment firm.

But Sung-Kwon Lee, chief economist of Good Morning Securities Co. in Seoul, said some investors are preparing for the worst. The South Korean stock exchange already is experiencing heavy selling by foreigners who he believes are liquidating positions in South Korea to cover anticipated losses related to a drop in the U.S. market.

That’s why U.S. officials bought some breathing space for the global economy by closing the markets, said William Belchere, Singapore-based Asia strategist for Merrill Lynch.

“By closing the markets, what you’re doing is telling people to get a grip on themselves,” Belchere said. “People will ask: Is the U.S. still a safe place to be? The answer is yes.”