Latest news with #USAssets
Yahoo
2 days ago
- Business
- Yahoo
The ‘revenge tax' buried deep in the budget bill could turn a trade war into a ‘capital war,' analyst says
Section 899 of the 'One Big Beautiful Bill' moving through Congress has raised growing alarms on Wall Street, after the once-obscure provision was initially overshadowed by the budget proposal's estimated impact on the deficit. Deutsche Bank warned that what's been dubbed the 'revenge tax' could further harm the attractiveness of U.S. assets. As Wall Street continued digesting the myriad line items in the 1,000-page budget bill that passed recently, one part has triggered an especially acute case of heartburn. Section 899 of the 'One Big Beautiful Bill' moving through Congress has raised growing alarms, after the once-obscure provision was initially overshadowed by the budget's estimated impact on the deficit. It has been dubbed the 'revenge tax' because it would increase rates for individuals and companies from countries with tax policies branded as 'discriminatory.' That means foreign investors, who own trillions of dollars in U.S. assets, could face higher levies on passive income like dividends and interest payments. Investors have already shifted toward Europe and China as President Donald Trump's aggressive tariff agenda has eroded the idea 'American exceptionalism.' Meanwhile, foreign investors are showing signs of a buyer's strike, shunning U.S. assets. For George Saravelos, head of FX research at Deutsche Bank, the idea of a revenge tax could make them even less attractive. It's also notable in the wake of a U.S. trade court's ruling Tuesday that invalidated Trump's reciprocal tariffs, as Section 899 could represent an alternative tool. 'We see this legislation as creating the scope for the US administration to transform a trade war into a capital war if it so wishes, a development that is highly relevant in the context of today's court decision constraining President Trump on trade policy,' Saravelos wrote in a note. He pointed out that Section 899 uses taxation on foreign investors as leverage to advance U.S. economic priorities and only has to meet a low bar before it can be enforced. It would also make covering deficits more difficult by lowering the de facto yield foreign government earn from U.S. Treasury bonds by nearly 100 basis points, Saravelos estimated. While the ultimate impact could be less than that, the mere introduction of more uncertainty and complexity around investing in U.S. assets 'undermines the attractiveness of dollar inflows at a time when this is already put in to question,' he warned. 'It is not unreasonable for the market to conclude that if the President is constrained on using trade policy, taxing foreign capital could be a new means of leverage,' he added. Even House Ways and Means Committee Chair Jason Smith, who supports the revenge tax, said during a panel discussion on Friday that he hopes it's never used and instead acts like more of a deterrent that stops other countries from cracking down on U.S. companies unfairly. Meanwhile, the Joint Committee on Taxation, the nonpartisan tax scorekeeper for Congress, echoed some of Wall Street's fears. Thomas Barthold, the committee's chief of staff, said in a statement to Bloomberg Tax that Section 899 would lead to a 'decline in foreign demand for US direct and portfolio investment.' This story was originally featured on
Yahoo
2 days ago
- Business
- Yahoo
The ‘revenge tax' buried deep in the budget bill could turn a trade war into a ‘capital war,' analyst says
Section 899 of the 'One Big Beautiful Bill' moving through Congress has raised growing alarms on Wall Street, after the once-obscure provision was initially overshadowed by the budget proposal's estimated impact on the deficit. Deutsche Bank warned that what's been dubbed the 'revenge tax' could further harm the attractiveness of U.S. assets. As Wall Street continued digesting the myriad line items in the 1,000-page budget bill that passed recently, one part has triggered an especially acute case of heartburn. Section 899 of the 'One Big Beautiful Bill' moving through Congress has raised growing alarms, after the once-obscure provision was initially overshadowed by the budget's estimated impact on the deficit. It has been dubbed the 'revenge tax' because it would increase rates for individuals and companies from countries with tax policies branded as 'discriminatory.' That means foreign investors, who own trillions of dollars in U.S. assets, could face higher levies on passive income like dividends and interest payments. Investors have already shifted toward Europe and China as President Donald Trump's aggressive tariff agenda has eroded the idea 'American exceptionalism.' Meanwhile, foreign investors are showing signs of a buyer's strike, shunning U.S. assets. For George Saravelos, head of FX research at Deutsche Bank, the idea of a revenge tax could make them even less attractive. It's also notable in the wake of a U.S. trade court's ruling Tuesday that invalidated Trump's reciprocal tariffs, as Section 899 could represent an alternative tool. 'We see this legislation as creating the scope for the US administration to transform a trade war into a capital war if it so wishes, a development that is highly relevant in the context of today's court decision constraining President Trump on trade policy,' Saravelos wrote in a note. He pointed out that Section 899 uses taxation on foreign investors as leverage to advance U.S. economic priorities and only has to meet a low bar before it can be enforced. It would also make covering deficits more difficult by lowering the de facto yield foreign government earn from U.S. Treasury bonds by nearly 100 basis points, Saravelos estimated. While the ultimate impact could be less than that, the mere introduction of more uncertainty and complexity around investing in U.S. assets 'undermines the attractiveness of dollar inflows at a time when this is already put in to question,' he warned. 'It is not unreasonable for the market to conclude that if the President is constrained on using trade policy, taxing foreign capital could be a new means of leverage,' he added. Even House Ways and Means Committee Chair Jason Smith, who supports the revenge tax, said during a panel discussion on Friday that he hopes it's never used and instead acts like more of a deterrent that stops other countries from cracking down on U.S. companies unfairly. Meanwhile, the Joint Committee on Taxation, the nonpartisan tax scorekeeper for Congress, echoed some of Wall Street's fears. Thomas Barthold, the committee's chief of staff, said in a statement to Bloomberg Tax that Section 899 would lead to a 'decline in foreign demand for US direct and portfolio investment.' This story was originally featured on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
3 days ago
- Business
- Yahoo
Do foreign investors hold too much of US assets?
Foreign holders of U.S. assets are under scrutiny as trade policy uncertainty stirs fears of a rapid sell-off. But JPMorgan's latest research finds foreign allocations to U.S. assets are far from excessive, casting doubt on the idea that overseas investors are dangerously overweight American markets. 'We are skeptical of the idea that foreign investors hold too much of US assets,' JPMorgan analysts said in a recent note, citing research showing foreign investors are surprisingly underweight U.S. assets. Despite the large dollar figures often cited, the bank notes that allocations to U.S. assets typically stand at just 10–20% of the total financial assets of households outside the U.S. This is well below the U.S. weight in global equity and bond indices—over 60% in the MSCI ACWI and about 50% for USD-denominated bonds. In other words, foreign investors are actually underweight U.S. assets relative to global benchmarks. There are outliers: Norway and Switzerland, whose sovereign wealth funds are overweight U.S. assets due to their mandates. But as JPMorgan points out, 'these two entities follow global index benchmarks, so they largely accept whatever weight on US assets markets set, rather than actively trying to diverge from market weights.' No major changes are anticipated in their allocations. Looking beyond Norway and Switzerland, the countries with the most exposure to U.S. assets are Canada, the Euro area, Taiwan, and Japan. Meanwhile, China, South Korea, India, and Brazil are among the least exposed. JPMorgan does, however, flag that custodial bias in U.S. TIC data might mean some exposures are underrepresented, but the overall picture remains: most foreign investors are not dangerously overexposed. Exposure has gradually increased in recent years, driven by outperformance in U.S. equities and steady flows into U.S. bonds. For both the Euro area and Japan, about half of their foreign portfolio investments are allocated to the U.S., though this is largely a function of global index composition and revaluation effects. Despite the headlines, JPMorgan's research suggests that fears of foreign investors being dangerously overweight U.S. assets are overblown. While there is potential for equity selling from rebalancing by balanced mutual funds, pension funds, and sovereign wealth funds, these are routine portfolio adjustments—not a wholesale flight triggered by trade policy jitters. 'Thus far, there is also little indication of either increased demand for hedging dollar exposures in cross-currency basis swaps (beyond ongoing wide levels in Taiwan) or selling of US assets by foreign investors,' JPMorgan said. Related articles Do foreign investors hold too much of US assets? Canada March GDP rises 0.1%; Q1 growth steady at 0.5% Trump says China violated agreement with U.S. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
5 days ago
- Business
- Bloomberg
ICYMI: Asia's 'Sell America' Moment Puts $7.5T at Risk
Bloomberg News Chief Correspondent for Global Macro Markets Liz McCormick explains why Asian investors are rethinking their strategy of investing in US assets. The trend has been driven by concerns over the US budget deficit, political polarization, and the impact of Trump's policies on the dollar. The shift away from US assets could lead to a significant unwinding of dollar investments, with potential beneficiaries including emerging markets, Europe, and Japan, and a possible appreciation of Asian currencies. This story is the subject of the latest Bloomberg Big Take. You can read the full story, and more from Bloomberg The Big Take on the Bloomberg Terminal and at
Bloomberg
6 days ago
- Business
- Bloomberg
Asia's 'Sell America' Moment, Japan's Bond Sale Crisis Deepens
Asian investors are rethinking their strategy of investing in US assets, driven by concerns over the US budget deficit, political polarization, and the impact of Trump's policies on the dollar. The shift away from US assets could lead to a significant unwinding of dollar investments, with potential beneficiaries including emerging markets, and a possible appreciation of Asian currencies. Japan's auction of 40-year government bonds Wednesday met demand that was the weakest since July, as investor appetite fell after volatility surged in global debt markets. The auction's poor performance may prompt the government to adjust its issuance of super-long bonds. The Opening Trade has everything you need to know as markets open across Europe. With analysis you won't find anywhere else, we break down the biggest stories of the day and speak to top guests who have skin in the game. Hosted by Anna Edwards, Guy Johnson and Kriti Gupta. (Source: Bloomberg)
