Finance. The Trend of Significant Foreign Investment in Canadian Securities continues

The trend of significant foreign investment in Canadian securities continued in June. Non-resident investors acquired $10.5 billion of Canadian securities with considerable investments in both federal government debt instruments and equities.

Meanwhile, Canadian investors purchased $1.4 billion of foreign securities, all equities.

Increased foreign demand for federal government bonds on secondary markets

Foreign investors bought $5.5 billion of Canadian bonds in June, ending the second quarter of 2009 with an all-time high foreign investment.

Foreign investment in June was equally split between new bonds and bonds purchased on secondary markets. The latter focused on federal government bonds as non-residents acquired $5.3 billion, mainly the five-year benchmark bond. At the same time, non-residents shed $2.4 billion of provincial government bonds on secondary markets, mostly Canadian dollar-denominated issues.

New issues of Canadian bonds remained strong in June and were largely denominated in US dollars. New issue activity was widespread across various sectors, including provincial governments, federal government enterprises and private corporations.

Foreign investment in Canadian money market instruments gains ground

June saw a robust $2.7 billion of foreign investment in Canadian money market instruments, after two months of divestment. Foreign acquisitions concentrated on federal government paper, almost equally split between Canadian and US dollar-denominated instruments.

In addition, foreign investors bought $524 million of provincial government paper in June but continued to reduce their holdings of federal government enterprise paper, a trend that began in January 2009.

Non-residents still favour Canadian stocks

Foreign demand for Canadian equities increased in June as non-residents added $2.3 billion to their holdings. Foreign investors chose equities across a wide variety of sectors with the exception of the information technology sector. Canadian stock prices levelled off in June following a strong 30% gain over the previous three months.

Divestment in US government bonds continues

Canadians sold $1.9 billion of foreign bonds in June. This activity was again the result of Canadians shedding US government bonds from their holdings.

Divestment in US government bonds focussed on instruments with shorter term-to-maturity (two to five years). Supply of new US government bonds expanded sharply in June and yields on these instruments reached their highest level since October 2008. Meanwhile, the US dollar gained ground against the Canadian dollar following three months of decline.

Canadians also disposed of $660 million of foreign money market instruments in June, largely US government Treasury bills. US short-term interest rates remained unchanged while Canadian rates increased in June.

Canadian investment in foreign equities focuses on US shares
Canadians returned to buying foreign shares in June, adding $4.0 billion to their portfolios. Resident investors mainly targeted US stocks, posting their largest investment in 18 months. US private equities accounted for a sizable share of the Canadian investment in June.

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