Canada sees a spike in foreign inflows

By Vikram Barhat | July 19, 2010 | Last updated on July 19, 2010
2 min read

A strong tailwind of foreign investment is proving Canadian securities to be a great place to park funds.

Investment in Canadian securities by non-residents strengthened substantially in May, with foreign inflows amounting to $23.2 billion, most notably for federal government debt instruments, says a recent report from Statistics Canada.

Another $2.9 billion made their way to Canada as Canadian investors sold their foreign securities to repatriate the largest amount of funds since January, says the report.

Canadian bonds lured $15.2 billion of foreign inflows, the largest inflow since the high of $19.5 billion in May last year.

Foreigners invested $11.5 billion in federal government bonds alone as they acquired a wide range of maturities. Federal government enterprise and provincial bonds also drew sizeable foreign inflows in May, mainly due to acquisitions of new issues.

Demographically, U.S. investors lead the pack of overall foreign acquisitions which focused predominately on Canadian dollar-denominated instruments, as the Canadian dollar retreated against the U.S. dollar for the first time in four months. Significant contributions were made by investors from the United Kingdom and Asian countries for the same period.

The month also saw an investment by non-residents of $2.7 billion in Canadian money market instruments; foreign investors added $3.7 billion worth of federal government paper to their holdings in May while showing waning interest in paper issued by Canadian banks.

It was also a good month for Canadian stocks, whose foreign purchases doubled to $5.3 billion, the largest inflow so far in 2010. Despite a retreat of 3.7% in May, Canadian stocks attracted widespread foreign investment across all sectors of the Toronto Stock Exchange, except for the energy and banking sectors.

Meanwhile, Canadian investors repatriated $5.3 billion by liquidating their foreign investments, including $3.1 billion worth of U.S. government bonds and $1.7 billion of non-U.S. foreign bonds, consisting largely of European sovereign debt.

However, U.S. Government Treasury bills continue to be a favorite destination for those looking for some stability in volatile times. All of the $317 million invested in foreign money market resulted from the acquisition of U.S. Government Treasury bills.

Canadians added a further $2.1 billion to their holdings of foreign stocks, virtually all in the form of U.S. shares.


Vikram Barhat