Purchases bounced back from a 2018 low, but it wasn’t enough to stem a net outflow of funds
Despite a surge in foreign investment in Canadian securities, the Canadian economy saw more than $2.9 billion in net outflows of funds in September, reported Statistics Canada on Friday.
Foreign investment in Canadian securities rose to $7.7 billion in September, a significant rebound from just $2.6 billion in August. The revival in activity was mostly driven by interest in the Canadian money market.
From January to September, foreign purchases of Canadian securities amounted to $7.3 billion, around half of the $144.6 billion over the same period in 2017. This year through September, foreign investors lightened their holdings of government bonds by $31.8 billion, in contrast to the $40.6 billion in total bond investments they committed for the same period in 2017.
Non-resident acquisitions in Canadian money-market instruments increased by $6.8 billion in September — the largest investment since in October 2016 — most of which came from purchases of Canadian Treasury bills and provincial government paper. In September, Canadian long-term interest rates rose by 10 basis points, while short-term rates went down 3 basis points; the Canadian dollar also saw some appreciation over the greenback.
Foreign holders of Canadian bonds reduced their holdings by $339 million in September, making it the second consecutive month of divestment. That activity reflected $7.4 billion worth of federal and provincial government-bond sales that was offset by purchases of corporate bonds amounting to $7 billion.
Foreign investment in Canadian equities totalled $1.2 billion for the month, making it the lowest investment in four months. Over the third quarter of 2018, foreign purchases of Canadian stocks amounted to $9.5 billion, which was the highest since the first quarter of 2017. Notably, Canadian stock prices were down by some 1.2% in September, and down by 1.3% in the quarter.
Looking at flows in the other direction, Canadian investors stepped up their acquisitions of foreign securities in September with $10.6 billion worth of purchases, mostly in non-US foreign instruments. They picked up an equivalent amount of foreign bonds and foreign shares in the month to more than make up for a divestment of $288 million in foreign securities in August.
Over the first nine months of 2018, Canadian investment in foreign securities reached $58.6 billion, slightly more than $51 billion over the same window in 2017. Canadian investor activity has reflected an appetite mainly for foreign bonds so far this year, compared to a preference for US shares last year.
As for Canadian investment in foreign debt securities, the September total increased to $5.4 billion compared to $3.5 billion in August. Most of the trading in September was in non-US foreign bonds, with US short-term rates having risen by 10 basis points and US long-term rates up by 11 basis points.
Foreign equity investment by Canadians reached $5.2 billion in September — the highest level since January — reversing from a divestment mode over the two months previous. Acquisitions in September targeted US and non-US shares; US stock prices ticked up in the month.
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