Global Macro Chart of the Day: (#135): Pitfalls in comparing implied foreign returns across countries

Research evidence excerpt

Global Macro Chart of the Day: (#135): Pitfalls in comparing implied foreign returns across countries

Global Research

30 July 2026ab

Global Macro Chart of the Day Economics

Global(#135): Pitfalls in comparing implied foreign

returns across countries Arend Kapteyn

Economist

arend.kapteyn@ubs.com

+44-20-7567 0531

Down the rabbit hole

One thing you can do with balance of payments data is compare the implied return on

foreign assets across countries. That can tell us something about the profitability or risk

profile of overseas investments. Today's chart does this for G10 economies by dividing

primary investment income by foreign asset stocks in the international investment

position (IIP). Central bank reserves are excluded because reserve-income reporting is

inconsistent across countries, so the figures largely reflect private sector investments.

For debt, the calculation combines income earned on FDI debt, portfolio debt and other

investment assets (mainly loans). For equity, it combines income on FDI and portfolio

equity. Importantly, the equity measure is an income yield, not a total return: it includes

dividends and, in the case of FDI, reinvested earnings, but excludes capital gains.

Taken at face value, Japan appears to earn the highest return on both its bond and

equity holdings. However, we need to be careful: unlike portfolio equity, FDI positions

are often not recorded at market value. If FDI is measured closer to book or historical

cost, the asset stock is understated and the implied return mechanically overstated. Also,

FDI income includes reinvested earnings, which can be substantial for countries with

highly profitable foreign affiliates. Indeed, both Japan and Switzerland show implied