Residents' Holdings of Debt Securities and
Equity Securities Issued by Non-Residents

by Lill Thanning Hansen, Statistics Department

Introduction

In the last 30 years capital flows across national borders have increased significantly. The development of new technology and the extensive liberalization of foreign-exchange markets have facilitated international capital flows.¹⁾ This growth should be viewed in the light of increased international trade in goods and services, lower costs for international financial transactions, and diversification gains when investments are spread across different assets and countries.

In the 1980s, and particularly in the 1990s, non-residents have shown considerable interest in acquiring Danish krone-denominated bonds, and in recent years non-residents' net purchases of Danish shares have also increased. Together with the current-account surplus since 1990 this capital import has resulted in a considerable inflow of foreign currency to Denmark. The foreign-exchange reserve has increased and the Nationalbank has acquired debt securities issued by non-residents. Furthermore, recent years have seen a significant increase in net purchases by Danish business enterprises and households of securities issued by non-residents. The development is illustrated in Chart 1 which shows debt securities and equity securities issued by non-residents and owned by residents since 1991.²⁾ In the following section this development is described, as well as the distribution on the key sectors of the economy: Danmarks Nationalbank, the banks, the rest of the private sector and the public sector.

At the end of 1991 debt securities accounted for by far the largest proportion of the holdings of securities issued by non-residents of Danish business enterprises and households, but six years later the holdings of

Picture: Chart 1 Debt securities and equity securities issued by non-residents and owned by residents, end-of-period

equity securities had exceeded holdings of debt securities, cf. Chart 1. Institutional investors dominate as owners of equity securities issued by non-residents and their investment behaviour and securities portfolios are described in the section on the holdings of institutional investors.³⁾ In the last section residents' holdings of long-term debt securities and equity securities issued by non-residents distributed by issuer's country at end-1997 are described.

The development 1991-1997

Residents' holdings of securities issued by non-residents are compiled by Danmarks Nationalbank in connection with the annual foreign-debt statistics, cf. Box 1. The portfolio is compiled at market value at year-end. The market value of the portfolio of debt securities and equity securities issued by non-residents was kr. 149 billion at end-1991, but had risen to kr. 337 billion at end-1997. The increase can be attributed to purchases of securities as well as capital gains.

Debt securities

Until 1995 there was no clear trend for the development in residents' holdings of debt securities issued by non-residents, cf. Table 1. In 1992 the

Box 1 Annual foreign-debt statistics

The statistics concerning residents' holdings of securities issued by non-residents from end-1991 to end-1997 are from the Nationalbank's annual foreign-debt statistics. These are based on various statistical data. The holdings of the Nationalbank and the banks of debt securities and equity securities issued by non-residents are shown in the Nationalbank's statistics for this area. In connection with the statistics at the end of 1991, 1994 and 1996 the Nationalbank carried out questionnaire surveys of the foreign assets and liabilities, including holdings of securities issued by non-residents, of private business enterprises, regional and local governments and various social funds. In the statistics for 1992, 1993, 1995 and 1997 the holdings of these business enterprises and institutions are calculated on the basis of the annual statistics for the preceding years with the addition of net purchases registered in the payments statistics and with adjustment for fluctuations in value during the year. These statistics are described in the Monetary Review - May 1994 and August 1996 - and in Special Statistics (in Danish) No. 1, June 1998.

private sector resold such securities, but on the other hand the foreign- exchange reserve in gross terms increased. Falling international interest rates had a favourable impact on stock-exchange prices in 1993, while the opposite was the case in 1994 when considerable resale was also seen.

Since the end of 1994 long-term bond yields have been falling again and the yield differential to Germany of most European countries, including Denmark, has narrowed. This has led to stock-exchange price increases and contributed to the growth in the private sector's holdings of debt securities issued by non-residents. The foreign-exchange reserve has also increased and a large proportion is placed in debt securities issued by non-residents. Since the end of 1994 the market value of total holdings of such securities has doubled.

At the end of 1991 the private non-bank sector and the public sector held debt securities issued by non-residents for kr. 50 billion. At the end of 1992 the holdings had dropped to kr. 33 billion, primarily due to the settlement of a number of speculative transactions based on borrowing in low-interest countries and placement in high-interest countries. This settlement activity should be viewed in the light of the amendment of Danish tax legislation whereby the tax exemption of private individuals' capital gains on securities purchased using borrowed funds lapsed. Concurrently, the currency unrest in 1992 dampened expectations that the interest-rate

Table 1 Residents' holdings of, net purchases of, and capital gains/losses on debt securities issued by non-residents

	Beginning of period	Net purchases	Value adjustment	End-of- period
	Kr. billion

The Nationalbank
1992	31	14	1	46
1993	46	- 2	3	47
1994	47	- 6	- 4	37
1995	37	2	2	41
1996	41	13	- 1	53
1997	53	28	0	81

Banks
1992	30	0	1	31
1993	31	1	2	34
1994	34	- 15	- 1	18
1995	18	13	1	32
1996	32	3	3	38
1997	38	13	0	51

Other private and public sector
1992	50	- 12	- 5	33
1993	33	- 2	3	34
1994	34	1	- 2	33
1995	33	2	0	35
1996	35	4	5	44
1997	44	7	5	56

Total
1992	111	2	- 3	110
1993	110	- 3	7	114
1994	114	- 20	- 7	88
1995	88	17	3	108
1996	108	20	7	135
1997	135	47	5	187

Note: The banks' net purchases and value adjustment of their portfolios are calculated on the basis of the monthly reports by the banks to the Nationalbank. Net purchases by other private sector and the public sector are compiled on the basis of the registration in the payments statistics, whereas value adjustments are estimated. The holdings of the public sector are held solely by ATP. Value adjustment of the holdings of the banks and the Nationalbank is solely adjustment of the stock-exchange-listed price.

"to be continued on next page"

Fodnoter

¹⁾ In 1978 Danish business enterprises and private individuals gained access to acquire stock-exchange-listed debt securities issued by international organizations of which Denmark was a member, and in 1983 all restrictions in this area were removed. In 1973 non-residents gained unrestricted access to purchase Danish stock-exchange-listed bonds, but in 1979 sales of Danish government bonds to non-residents were prohibited. This prohibition was abolished in 1983. In 1984 Danish business enterprises and private individuals gained access to purchase stock-exchange-listed equity securities issued by non-residents. In 1988 the remaining currency restrictions were abolished.

²⁾ Debt securities entitle the holder to receive a fixed income or a variable income as stipulated in the contract. Debt securities include money-market securities, but not financial derivatives. Equity securities are defined as share certificates in companies where the investor holds less than 10 per cent of the equity capital or voting rights in the company. Securities issued by non-residents comprise securities issued in kroner and foreign currency by non-residents or by international organizations.

³⁾ Institutional investors comprise private and public insurance companies and pension funds, as well as collective investment institutions.