Finance. Strong Acquisitions of Canadian Securities by Non-residents

Foreign demand for Canadian securities again outpaced Canadian investors' demand for foreign securities in April. Non-residents continued their strong acquisitions of Canadian securities by adding a further $9.0 billion to their portfolios, mainly government debt instruments as well as shares.

Meanwhile, Canadian investment in foreign securities slowed to $1.3 billion with acquisitions comprised of non-US securities.

Foreign investment in Canadian debt instruments led by provincial bonds

Foreign acquisitions of Canadian bonds reached $5.8 billion in April, similar to the activity in January and February. However, in April, the investment focus shifted from federal to provincial government bonds. Non-residents also invested in bonds of the federal enterprise sector, but these purchases were more than offset by divestment of federal government bonds.

Foreign investors added $6.7 billion of provincial bonds to their holdings as total new issues for this sector expanded sharply in April, to levels last seen in the early 1990s. Most of the foreign investment in April was directed to provincial bonds denominated in non-US foreign currencies. Geographically, British investors acquired the majority of these provincial bonds.

Bonds have an original term to maturity of more than one year.

Money market instruments have an original term to maturity of one year or less.

Government of Canada paper includes treasury bills and US-dollar Canada bills.

Foreign activity in Canadian money market instruments was marginal in April, following strong acquisitions in four of the previous five months. Although the overall supply of federal paper contracted in April, non-residents purchased $1.5 billion worth in the secondary market, with nearly half in US dollar-denominated paper. These purchases were completely offset by reductions in foreign holdings of paper from other sectors.

Largest foreign investment in Canadian stocks in more than a year
Non-residents acquired $3.3 billion of Canadian equities, the largest investment in more than a year. Investment favoured shares of information technology and energy firms, while holdings of gold stocks were reduced. Canadian equity prices increased 6.9% in April, led by the information technology sector.

Canadian investment in foreign debt instruments softens
Canadian investors acquired $960 million of foreign bonds in April and removed $594 million from their holdings of foreign money market instruments.

Canadian investment in foreign bonds was in non-US bonds, adding $1.1 billion of these instruments in April. This was the highest acquisition of these instruments since the onset of the global credit crisis. While the pre-crisis investment in non-US foreign bonds was fuelled by corporate maple bonds, investment in April focussed on bonds issued by non-US governments, largely G8 members.

Canadian investors divested $720 million of US treasury bills in April. By month end, the Canadian dollar rose 4.5 cents US, the largest monthly appreciation since October 2007.

Canadian investors reduce demand for foreign equities

Canadian purchases of foreign equities decelerated to $907 million in April, following three months of robust investment. Acquisitions of non-US shares continued but Canadians sold US stocks in April, despite a strong gain in US equity prices. Canadian investment focussed on shares of overseas information technology, energy and consumer sectors while residents sold off a diversified basket of US equities.

Source:Statistics Canada, June 22, 2009

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