Foreign Investment Fleeing U.S.

As the U.S., the world’s safest investment destination, witnesses massive capital flight, the market is increasingly growing anxious about the U.S. economy.

If foreign investment continues to leave the U.S., which is the “engine” of the global economy, the dollar will depreciate further and the country’s economy is highly likely to slow down, impacting the world economy.

With uncertainties in the U.S. economy, oil prices are going up and stock prices across the world are plunging. This will negatively affect the Korean economy, which is heavily reliant on external factors.

Foreign media outlets, including Reuters, said yesterday, citing statistics from the U.S. Treasury, that the net selling of securities by foreign investors in August reached a record monthly amount of $163 billion.

Experts say that foreign funds are fleeing America because their return on investment is going down due to the weak dollar, and that the prospect of the country’s economy is deteriorating because of the recent subprime mortgage meltdown.

Oil prices are still on a steep rise because of instability in the Middle East and the influx of speculative money fleeing the dollar market.

The spot price of Dubai oil on October 16 was up $2.02 from the previous day to reach a record price of $78.59.

Western Texas Intermediate for November shipment was traded at $87.61 the same day, up $1.48 from the day before, at New York Mercantile Exchange, setting new highs for three days in a row.

Domestic oil prices are also rising.

Gasoline price at the pump in Korea rose 12 percent this week to 1,555.33 won per liter from 1,394.18 won in the first week of January. Light oil prices also went up 13 percent from 1,182.42 won to 1,336.53 won per liter.

Due to the impact of the global oil price surge and anxiety over the U.S. economy, stock prices declined around the world, including in Korea.

In Seoul, the KOSPI index closed 21.82 points or 1.09 percent down from the previous day at 1,983.94 won, while the KOSDAQ index lost 12.51 points or 1.58 percent at 780.22 won.

Stephen Roach, Morgan Stanley’s Asia Division chairman, said in the 2007 World Knowledge Forum held yesterday in Walkerhill Hotel in Seoul, “As the subprime problem appears to be here to stay for a while, consumption in the U.S. is bound to decline, which is expected to ultimately slow down the American economy.”

He warned, “The ‘wealth effect’ in which rising asset prices boost consumption was behind the growth of the U.S. economy. But the wealth effect has come to an end now.”