Foreign Demand for Canadian Securities Up

Foreign demand for Canadian securities was up strongly in September, as non-residents added $13.6 billion to their portfolios.

This activity was largely comprised of significant acquisitions of Canadian stocks. Foreign investors also continued to rebalance their holdings of Canadian debt in favour of longer-term securities, mainly in the federal government sector.

Canadian investors, in contrast, removed $4.8 billion from their holdings of foreign securities in September, mainly bonds. This was the largest monthly divestment since December 2008.

Non-resident demand for Canadian corporate shares up strongly
Foreign investment in Canadian equities reached $12.9 billion in September, the largest inflow since April 2004. Two-thirds of this activity was directed to new issues of Canadian shares. In September, outward direct investment activity picked up steam, resulting in Canadian firms issuing new shares to non-resident portfolio investors of acquired firms.

At the same time, foreign demand for Canadian shares on secondary markets generated a $4.3 billion inflow, a level last seen in April 2007. Equities from the gold and banking sectors attracted sizeable foreign buying. In September, Canadian equity prices increased nearly 5% to a 52-week high.

Foreign investors continue to favour Canadian long-term debt instruments

Non-residents continued to adjust their portfolios of Canadian debt securities in September, acquiring $2.6 billion of Canadian bonds and disposing of $1.9 billion of Canadian money market instruments.

The data series on international security transactions cover portfolio transactions in stocks, bonds and money market instruments for both Canadian and foreign issues.

Stocks include common and preferred equities, as well as warrants.

Debt securities include bonds and money market instruments.

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.

Non-residents added Canadian bonds issued by private corporations to their holdings in September, predominantly new bonds from the resource and financial sectors. Foreign acquisitions of federal government bonds slowed in September, despite the first issuance of a federal bond on foreign markets since March 2001. Since the beginning of the year, foreign holdings of federal government bonds have increased by one-third. However, non-residents reduced their holdings of federal government enterprise and provincial bonds, due to retirements.

Currency-wise, this activity resulted in foreign investors adding $9.5 billion of US dollar-denominated Canadian bonds to their portfolios and shedding Canadian dollar-denominated bonds. In September, the Canadian dollar appreciated against its US counterpart, and nearly recouped the depreciation recorded over the past 12 months.

At the short-term end of the maturity spectrum, non-residents reduced their holdings of Canadian money market instruments for a third month. This activity was largely comprised of divestment in federal and provincial government paper.

Canadians sell foreign shares as major global stock markets post gains

Canadian investors sold $1.2 billion of foreign shares in September, following three months of acquisitions, as equity prices in major North American and European stock markets posted gains. The divestment activity was focussed in non-US foreign stocks, largely European stocks. At the same time, investment activity in US stocks was sustained. In September, US stock prices continued their recent climb, rising 3.6%.

Divestment in foreign bonds accelerates

Canadians continued to dispose of foreign bonds in September, removing $4.1 billion from their holdings. This was an extension of divestments that began in May, and amounted to the largest such activity since October 2008. Since the third quarter of 2007, at the outset of global credit concerns, Canadians have reduced their exposure to foreign long-term debt securities by a total divestment of $29.7 billion.

September's divestment in bonds was focussed in US government as well as in non-US foreign securities. The former was driven by sales of two-year US Treasury bonds and the latter was largely explained by further retirements of maple bonds.

Canadians acquired $520 million in foreign money market instruments in September, investing in US paper but disposing of non-US paper. Canadian investment in US paper was mostly in Treasury bills.

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