Canadian securities continue to draw significant foreign investment

Canadian securities continued to draw significant foreign investment in October. Non-residents acquired $5.8 billion during the month, mainly federal government bonds.

Non-residents have added $86.4 billion of Canadian securities to their portfolios so far in 2009, already exceeding any previous annual foreign investment.

Meanwhile, Canadians removed $4.2 billion from their holdings of foreign securities in October, divesting both debt and equity instruments. This followed a $4.7 billion divestment in September.

Strong non-resident demand for Canadian federal government bonds
Foreign investors continued to adjust their holdings of Canadian debt securities to longer term instruments in October. They added $6.0 billion of Canadian bonds to their portfolios, the largest inflow since May 2009, and disposed of $1.6 billion of Canadian money market instruments.

This activity was largely comprised of the Canadian federal government securities. Non-residents acquired $4.5 billion of federal bonds through secondary markets in October, covering nearly all benchmark bonds. At the same time, they reduced their holdings of federal paper by $1.9 billion, mainly due to retirements.

Foreign investment in Canadian private corporate bonds was also sizable at $1.8 billion in October, and was dominated by secondary markets purchases. Bonds backed by mortgages and credit card receivables attracted the bulk of the foreign buying.

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.

Foreign investors' acquisitions of Canadian stocks continue
Non-residents added a further $1.4 billion of Canadian equities to their portfolios in October, marking nine months of purchases of these instruments. This occurred as Canadian stock prices fell 4.2%, the first decline since February 2009. Losses were led by the banking and financial sectors, after having posted gains of 45% and 30% respectively since the beginning of the year. Foreign acquisitions of Canadian corporate shares in October favoured gold mining stocks; at the same time, non-resident investors sold technology and energy shares.

Canadian investors dispose of US government debt securities
Canadians have reduced their holdings of foreign bonds since May 2009, disposing of a further $1.9 billion in October. This activity was again dominated by divestment of US government bonds, the two- and five-year bonds in particular. Canadians have sold a considerable amount of US Treasury bonds from their holdings in recent months. During the period, yields on US government bonds with shorter term-to-maturity have under performed their Canadian counterparts, and the US dollar has depreciated rapidly against the Canadian dollar.

Canadians also trimmed their holdings of foreign money market instruments by $363 million in October. Residents sold US Treasury bills as yields remained near zero. The remainder of the activity was accounted for by a reduction in holdings of commercial paper of foreign banks, mainly European banks.

Canadians sell non-US foreign equities, as stock prices retreat
Canadian investors, largely mutual funds, reduced their exposure to foreign shares for a second month in October, selling $1.9 billion worth. October's divestment focussed on non-US stocks. By the end of October, major foreign equity indices had declined from their September highs.

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