Rising oil prices could lead to a sell-off of U.S. assets abroad - Barron's

Oil prices, which soared after the war in the Middle East, are creating problems for foreign importers, which could eventually spill over to U.S. portfolios, Barron's warns . With the currencies of most major economies weakened, countries and companies outside the U.S. may start selling U.S. stocks and bonds to get dollars to pay for higher energy prices, the publication said.

Rising oil prices are increasing pressure on foreign investors: in the face of rising energy prices and a stronger dollar, they may start selling off U.S. assets to cover costs, Barron's writes.

According to the latest data from the U.S. Treasury Department, the amount of long-term securities held by foreigners has risen 52% over the past three years to $36.8 trillion in January. Among the big oil importers is Japan, which holds $2.96 trillion in U.S. securities, while paying about 17,329 yen ($109) per barrel of Brent crude this quarter - the highest level on record since 1989, according to FactSet. South Korea - whose investors hold $889.3 billion worth of U.S. securities - is also facing record costs. The country is the world's third-largest oil importer.

"For now, foreign investors do not need to sell off U.S. assets to finance higher energy costs. However, if high oil prices persist, these countries [Japan and South Korea] may need to reduce investments in U.S. stocks and bonds to finance energy imports," Wellington Management portfolio manager Bridge Khurana wrote in a March 17 post on LinkedIn.

High oil prices are also putting a strain on China - the largest importer - and India, the second-largest. Like the yen and South Korean won, the Indian rupee and Chinese yuan have weakened against the dollar.

The data of the US Ministry of Finance, however, reflects the place of storage of US securities, and not necessarily the country of the ultimate owner, the edition draws attention to. For example, a Chinese hedge fund may use Luxembourg as a jurisdiction to store US assets, which distorts the real geography of demand, Barron's explains. The UK, Ireland, Belgium and the Cayman Islands may hold assets for the benefit of other investors - both US and foreign, notes Deutsche Bank strategist Stephen Tseng,

In addition, dollar reserves serve as a source of liquidity in times of stress, so selling U.S. assets probably won't be the first step for foreign governments or companies, Barron's recognizes.

March 20 oil futures fell slightly: exchange-traded contracts for Mark Brent on March 20 traded at about $107 per barrel, while at the intraday high on March 19 they reached $119 per barrel. The price of May futures for WTI at the time of publication was about $95 per barrel.

U.S. stocks declined in the premarket, with S&P 500 and Dow Jones futures losing about 0.4% and Nasdaq Composite futures losing 0.5%.

This article was AI-translated and verified by a human editor