Canada. Foreign investment in securities up

Foreign investment in Canadian securities continued to increase, reaching $11.8 billion in January, with debt instruments continuing to attract the bulk of the inflow of funds.

In contrast, Canadians removed $5.8 billion from their holdings of foreign securities in January, the largest reduction since December 2008.

Strong foreign investment in Canadian debt instruments continues

Foreign investment in Canadian bonds was again robust at $10.0 billion in January. Canadian federal government bonds accounted for two-thirds of this activity, both new issues abroad and secondary market purchases. Canadian corporate bonds made up the balance, led by foreign acquisitions on secondary markets, largely mortgage-backed instruments. For the corporate sector, new issues of bonds were subdued in January, after having nearly equalled the value of all foreign investment in 2009.

Foreign funds of $2.5 billion were channelled to Canadian money market instruments in January, mostly three-month Federal Treasury bills. This contrasted with the trend observed since April 2009, when non-residents moved significant funds from Canadian paper to Canadian bonds and equities as the supply of Federal paper was reduced and equity prices rebounded.

Foreign investors sell Canadian equities as prices decline

Non-residents disposed of $649 million of Canadian stocks in January, the second monthly divestment in 12 months. Foreign investors sold $1.1 billion of Canadian equities on secondary markets, and new issues slowed in the month. In January, Canadian stock prices fell 5.5%, the sharpest decline since February 2009. While price declines were widespread, foreign divestment was concentrated in shares in the resource and financial sectors.

Canadians reduce their holdings of foreign bonds

Canadian investors sold $5.6 billion of foreign bonds in January, the largest divestment since October 2008 at the height of the financial crisis. Similar to that period, US government bonds accounted for most of the decline. In contrast to October 2008, divestment was focused on shorter term-to-maturity bonds.

The remainder of the divestment activity in January was in non-US foreign bonds as Canadian investors removed $1.9 billion from their holdings, largely reflecting retirements of maple bonds. This followed three months of moderate investment in non-US foreign bonds.

Canadians added $373 million of foreign money market paper to their portfolios in January, all US government paper. Canadians sold US corporate paper for the first time since July 2009, largely instruments of non-bank financial institutions.

Banking shares drive the divestment in non-US foreign stocks
After a brief pause in December 2009, Canadians further reduced their exposure to foreign stocks in January. They removed $647 million from their holdings, all in non-US foreign stocks and mainly in banking shares. This was partially moderated by investment in US stocks by Canadian mutual funds, despite a decline in US market indexes.

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