Canadians favour foreign bonds: StatsCan

Canadians continued to show a preference for foreign investments, particularly bonds, which saw record levels of investment for the month of January, according to the latest report from Statistics Canada.

StatsCan reports that Canadians added $7.8 billion worth of foreign securities to their holdings in January. Much of the investment in foreign holdings was in bonds — with Canadians buying a record $6.2 billion worth in January, adding to last year’s record purchases of $43.2 billion, StatsCan highlights.

Over 70% of January’s investments were in overseas bonds, setting a monthly record of $4.4 billion, $3.0 billion of which was invested in maple bonds — foreign-issued bonds denominated in Canadian dollars. Canadians also invested $1.6 billion in U.S. maple bonds in January.

Bonds led the way, but Canadian investors also showed a strong preference for foreign equities, buying $3.4 billion worth during the month, more than triple the $1.0 billion they bought in December. January’s acquisitions were almost equally split between U.S. and overseas stocks.

At the same time, non-resident investors sold off $3.8 billion worth of Canadian securities, mostly on the fixed-income side.

Foreign investors sold off $3.1 billion worth of Canadian bonds, of which 90%, or $2.7 billion, were outstanding Government of Canada bonds. This followed December’s divestment totalling $3.3 billion, mainly due to the retirement of $2.2 billion worth of federal government bonds.

American and European investors sold off $3.1 billion and $1.1 billion worth of bonds respectively. This was slightly offset by investors from emerging economies, who purchased Canadian bonds for a fifth consecutive month, buying nearly $1.0 billion worth in January, StatsCan points out.

Canadian equities fared only slightly better than bonds. Despite increasing Canadian stock prices, foreign investment in Canadian equities was not significant. Overall, non-residents added $86 million worth of new Canadian shares to their portfolios. American investors bought $1.2 billion worth, which was essentially offset by investors from Europe and emerging economies who sold off Canadian shares worth a similar amount.

In a research note out of BMO Nesbitt Burns, assistant chief economist Paul Ferley explained that the divestment in Canadian bonds was largely due to higher yields to be found elsewhere, particularly in the United States, where interest rates are higher.

But the big story, Ferley asserts, is a continued investor preference for foreign equity, which, they say, was particularly strong due to the lifted restrictions on foreign content in RRSPs, Canada’s large current account surplus and funds being recycled abroad.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com