Foreign Acquisitions of Canadian Securities reach a Five-year High

Cross-border transactions in securities resulted in substantial inflows of funds to Canada in May. Foreign acquisitions of Canadian securities reached a five-year high of $18.9 billion in the month, fuelled by new issues of Canadian corporate bonds.

Meanwhile, Canadians sold $985 million of foreign securities, marking their first divestment in 2009.

Foreign acquisitions of Canadian corporate bonds up strongly
Non-resident investors purchased an unprecedented $19.4 billion of Canadian bonds in May, largely corporate bonds. At the same time, they reduced their holding of Canadian money market instruments by $1.5 billion, mainly due to retirements.

Canadian firms, mainly from the energy and resources sectors, issued $9.3 billion of new bonds in foreign markets in May, nearly all US dollar-denominated bonds placed in the US market. Interest rate differentials between corporate and government securities continued to narrow in the United States. Reduced borrowing costs and the strength of the Canadian dollar may have contributed to strong cross-border new issues of corporate bonds in May.

Foreign investors also acquired $6.5 billion of Canadian bonds on secondary markets in May. Acquisitions were comprised of existing bonds from Canadian governments and their enterprises as new issues were reduced for these sectors in May.

Non-residents continue to acquire Canadian stocks

Non-residents have picked up Canadian stocks for four months in a row, adding $1.1 billion to their portfolios in May. Foreign investment remained focused on shares of the technology and financial sectors, the best performing sectors on the Canadian stock market so far this year. Canadian stock prices rose 11.2% in May, closing the month at the highest level since September 2008.

Canadian investors sell US government bonds and buy US Treasury bills

Canadian investment in foreign debt securities concentrated on short-term instruments in May, as investors in Canada sold $733 million of foreign bonds in favour of $965 million of foreign money market paper. US government debt securities were the focus of this activity.

Over the month, the supply of new US government debt securities was mainly in Treasury bills. In addition, the short-term interest rate differential between the United States and Canada was the narrowest since August 2007. Meanwhile, the Canadian dollar rose 7.8 US cents, the largest monthly appreciation in over half a century.

Canadian investors sell foreign stocks for the first time in 2009
Despite a continued rally in stock prices in major world equity markets, Canadians shed foreign stocks in May. This was the first divestment in 2009 after acquiring $11.7 billion in the first four months of the year. Resident investors sold $1.2 billion of foreign shares, almost all non-US securities and concentrated in shares of the financial and consumer products sectors.

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