Join our community of smart investors

Confidence in shares too high

Foreign investors' confidence in US equities does not necessarily bode well

There was worrying news for equity investors in this week's US figures on cross-border capital flows.

In the past three months, foreigners bought $90.7bn (£45.1bn) of US stocks - close to a record. In the past, high confidence in US stocks has led to falling share prices globally. Since January 1996, the correlation between foreign buying and subsequent annual changes in the All-Share has been minus 0.51. So, if this relationship continues to hold, the All-Share could fall sharply in the next 12 months.