Foreign Net Purchases of US Stocks Fall Near Zero

Foreign appetite for US equities has dwindled to its lowest point since the 2025 tariff disputes, with net purchases over a three-month period falling to nearly zero, according to an analysis of US Treasury data.

"While the headline shows strong capital inflows, the underlying support for US stocks and bonds from foreign investors is weakening," Simon White, a macro strategist at Bloomberg, said in a recent note. "This could become one of the most significant risks for the market."

Data for March showed that while the US recorded net capital inflows of approximately $150 billion, this was largely due to US investors selling off foreign bonds. Foreign net buying of US stocks on a three-month rolling basis has collapsed, a sharp reversal from the trillions of dollars that flowed into the market in previous years. At the same time, demand for US Treasuries has also softened, with three-month net purchases at just $50 billion.

The decline in foreign demand removes a critical pillar of support for a market with high valuations, increasing its vulnerability to other macro risks such as rising bond yields, which have seen the 10-year Treasury exceed 4.6 percent. Should this trend persist, it could amplify pressure on equity valuations and increase financing costs for the US government.

A Multi-Front Pressure on Valuations

The waning interest from foreign buyers comes as equity markets are grappling with a series of headwinds. A strong dollar makes US assets more expensive for foreign investors, and rising interest rates offer a safer alternative in American bonds.

"The US Treasury yields are basically the world’s gravity meter for money," Mohit Gulati, CIO and managing partner of ITI Growth Opportunities Fund, explained. "When yields rise, global investors suddenly get paid more to sit safely in American bonds, so riskier markets like India can see foreign money slow down or move out temporarily."

This dynamic has a direct impact on how stocks are valued. As the risk-free rate rises, the discount rate used in equity valuation models also increases, which in turn lowers the present value of future cash flows. "From a theoretical and financial modelling standpoint, rising bond yields generally lead to moderation in equity valuations," said Sunny Agrawal, Head of Fundamental Research at SBI Securities.

The Dollar and Oil Complicate the Picture

Beyond rising yields, the strength of the US dollar and elevated oil prices are also creating a challenging environment. A stronger dollar can pressure the earnings of US multinational corporations and further deter foreign investment.

"If the dollar stays strong and the rupee keeps weakening, FPIs become more sensitive to valuation and earnings disappointment. That is a real risk in the current setup," said Rahul Ghose, CEO of Hedged.in. He also identified a sustained spike in oil prices as a major macro risk that could affect everything from inflation to corporate costs.

While India has its own domestic strengths, such as strong SIP flows, that act as "shock absorbers," the global macro environment, particularly the trend in US yields and foreign flows, remains a key factor for emerging markets. The current slowdown in foreign purchases of US assets suggests that investors are becoming more cautious, a trend that could have far-reaching implications if it continues.

This article is for informational purposes only and does not constitute investment advice.