Canadian securities attracting foreign funds

By Vikram Barhat | May 17, 2011 | Last updated on May 17, 2011
2 min read

Foreign investors are snapping up Canadian securities while Canadians are looking elsewhere for diversification and growth, according to the latest Statistics Canada figures.

After taking a pause in February, foreign investors are flocking back to Canada. They acquired Canadian bonds and stocks worth $6.3 billion in March. In contrast, Canadian investors added $1.3 billion of foreign stocks to their holdings in March, making it three months in a row.

Non-resident investors snapped up $8 billion worth of federal government and corporate bonds on the secondary market, the largest amount since May 2010. This was partially offset by a record high in retirements of federal government enterprise bonds in the month.

Foreign investment in federal government bonds rebounded to $3.8 billion and was concentrated on medium term-to-maturity bonds, following significant activity in short-term bonds over the previous two months. Purchases of corporate bonds on the secondary market remained robust in March and were focused in Canadian mortgage backed securities.

Canadian equities, shares of Canadian financial and mining firms making up the bulk, continue to attract foreign investors reeling in $3.3 billion in March, with investment over the quarter reaching its highest level since the third quarter of 2009.

Down at $209 million in March, Canadian money market instruments somewhat failed to hold the same appeal to overseas investors as stocks and bonds. This resulted from sizeable retirements of provincial government paper, which more than offset foreign investment in new Canadian US dollar denominated corporate paper.

Resident Canadians, on the other hand, acquired foreign stocks for a third straight month, investing $1.3 billion in foreign stocks in March. The acquisition was almost equally split between U.S. stocks and other foreign stocks. As the US stock prices rose in March to their highest level since May 2008, Canadians snapped up U.S. funds tracking broad U.S. equity market indices. Canadian investment in non-U.S. foreign equities was focused on European stocks and was led by Canadian pension funds.

Foreign bonds, however, did not have the same effect on Canadian investors who shed their investment, largely in U.S. government short-term bonds, by $2.3 billion in March, thus more than offsetting the acquisitions of the previous month. Canadians also divested $701 million of foreign money market instruments in March, all in U.S. government T-bills and erased last two months’ gain.

Vikram Barhat