Foreign acquisitions of Canadian securities fell to $351 million in July

Foreign acquisitions of Canadian securities fell to $351 million in July, following investment of $61.9 billion over the first six months of 2009.

Non-residents rebalanced their holdings of federal government debt instruments by disposing of short-term paper in July and acquiring bonds. Meanwhile, Canadians sold $526 million of foreign securities as divestment in debt instruments continued and investment in foreign stocks slowed.

Foreign investors move to Canadian bonds from money market instruments

Non-residents adjusted their portfolios of Canadian debt instruments in July by adding $3.6 billion of bonds and reducing their holdings of money market instruments by a similar amount. Most of this activity was concentrated in federal government securities.

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 investment in Canadian bonds was from secondary market transactions, with little new issue activity in July. Non-residents picked up $2.6 billion of federal government bonds, with the balance accounted for by corporate debt securities. Since January 2009, non-residents have added $45.7 billion of Canadian bonds to their holdings, already exceeding any previous annual investment activity.

At the short-term end of the spectrum, sizeable retirements of federal government paper in July led to foreign investors removing $3.9 billion from their holdings over the month.

Non-resident demand for Canadian equities eases

Non-residents continued to buy Canadian shares but at a much slower pace in July, adding $612 million. Foreign acquisitions of bank and financial shares continued to be robust but were partly offset by divestment in energy and gold stocks. In July, Canadian stock prices posted a fifth straight monthly gain, reaching their highest level since September 2008.

Canadians sell foreign debt instruments

Canadian investors continued to reduce holdings of foreign debt instruments in July, disposing of $625 million in foreign bonds and $725 million in foreign money market instruments. Divestment was focussed in debt instruments of the US government and its agencies.

For the US government sector alone, Canadians disposed of $932 million of bonds and $665 million of money market paper in July. This occurred against the backdrop of a weakened US currency and an expanding US government deficit.

Canadian demand for foreign equities slows

Canadian investors added a moderate $824 million of foreign shares in July, compared with a $3.8 billion acquisition the month before.

Canadian investment in July focussed on non-US foreign equities. Canadians acquired shares of corporations in emerging economies while selling European energy stocks. Acquisitions also included $237 million of US shares as US stock prices (as measured by the Standard & Poor's composite index) rose 7.4% in July.

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