Foreign investors turn back to Canada

In January, Canadians reduced foreign holdings by $10.8 billion, says Avery Shenfeld of CIBC World Economics in a release.

But at the same time, he finds, “foreign investors came back into the Canadian market with a $5.7 billion net addition to holdings, rebounding from net outflows in December.”

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In particular, “heavy selling in money market paper was more than offset by an inflow of $10.5 billion in bonds, including a record rise in provincials. In Canadian dollar-denominated bonds, there was a strong inflow of $5 billion—that’s close to the average pace we saw in the strong years of Canadian dollar buying [between] 2010 and 2012.”

Still, notes Shenfeld, that activity didn’t “fully offset the prior month’s $7.5 billion outflow.”

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With oil weak, and with Canada’s trade and current account balance tumbling, Shenfeld says the loonie “has yet to find a level soft enough to represent a buying opportunity that attracts such capital account inflows. [But] with European yields dipping into negative territory, we may now be in that range, with January representing a huge shift in the capital account [and] providing more than enough offset to the trade deficit.”

As such, Shenfeld predicts the loonie may be stronger going forward.

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