Foreign investment in Canadian securities was C$7.9B in August, of which C$6B was in Canadian bonds; Canadians added C$2B in foreign securities to their holdings, led by acquisitions of U.S. corporate shares
October 17, 2011
– Foreign investment in Canadian securities slowed to $7.9 billion in August, with most of the investment in the Canadian bond market. Canadians added a further $2.0 billion of foreign securities to their holdings, again this month led by acquisitions of US corporate shares.
Non-resident investors continue to acquire Canadian bonds
Non-residents acquired $6.0 billion of Canadian bonds in August, the largest investment in three months. These purchases totalled $31.6 billion for the first eight months of 2011. However, this amounted to less than half of the inflows recorded over the same period in 2010, largely reflecting reduced foreign investment in federal bonds.
Foreign investment in August focused on US dollar-denominated new issues by federal government enterprises and provincial governments. Secondary market purchases remained subdued, reflecting a third consecutive monthly reduction in foreign holdings of federal bonds.
The $1.0 billion foreign divestment in federal bonds in August targeted shorter term bonds. Long-term interest rates in Canada decreased further in August as the difference between long- and short-term interest rates narrowed to its lowest level in three years.
Non-residents purchase Canadian Treasury bills for a second month
Non-residents added $1.6 billion of Canadian money market instruments to their holdings in August, led by further acquisitions of Canadian Treasury bills. This followed the record foreign investment of $6.0 billion in federal paper recorded in July. With the exception of June, non-residents have acquired significant amounts of Treasury bills since April, a period during which their holdings increased by over $14 billion.
Lowest foreign investment in Canadian equities in four months
Non-residents purchased $306 million of Canadian stocks in August, down from a $2.8 billion acquisition in July. New issue activity accounted for most of this activity while non-residents sold Canadian shares on the secondary market for a second month. Non-residents had previously invested $13.8 billion in Canadian stocks through secondary market acquisitions between December 2010 and June 2011. Canadian stock prices declined for a sixth consecutive month in August.
Canadian investors further reduce holdings of foreign debt
Residents divested a further $1.4 billion in foreign bonds in August, for a total reduction of $10.8 billion since the beginning of 2011. US Government securities again led the reduction in holdings of foreign bonds. Long-term interest rates in the United States have declined each month since February to reach levels last seen at the end of 2008.
Canadian investors also reduced their holdings of foreign short-term securities by $232 million in August, more than offsetting the investment in July. The divestment in August was concentrated in US Treasury bills. Short-term interest rates in the United States decreased further during the month, reaching 0.02% by month-end.
Canadian investors continue to acquire US stocks
Canadians invested in foreign stocks for an eighth straight month in August, adding $3.7 billion to their holdings, with US stocks accounting for all of the increase. Investors have largely favoured US stocks over non-US foreign stocks during this period, led by demand from Canadian pension funds. US stock prices declined for a fourth month in a row in August.