Canadians buy record value in foreign securities: StatsCan

December 2006 capped a year-long trend that saw Canadians increasingly choosing to invest in foreign equity. In fact, StatsCan reports that Canadian investment in foreign securities reached a record $78.3 billion in 2006.

Canadians invested $5.6 billion in foreign securities in December, putting 70% into debt instruments and the remaining 30% into equities. According to StatsCan, Canadians have added foreign securities to their portfolios for 23 consecutive months now.

A large portion of Canadians’ purchases of this foreign content was in bonds — $3.4 billion worth in December alone to cap off a record total of $43 billion for the year. Two-thirds of this investment was in maple bonds, foreign-issued bonds in Canadian dollars. Canadians bought $3.1 billion in maple bonds during December en route to a year-long total of $28.6 billion.

It wasn’t a record year for Canadian purchases of foreign shares, but there was still a considerable increase of foreign shares added to their holdings. Canadians bought $28.9 billion in foreign stock in 2006, a five-year high. The allocation of these purchases was quite different in December than in previous months because more than two-thirds of the foreign stock acquired was in U.S. equity, whereas overseas stock purchases dominated November.

Non-Canadian residents reduced their holdings of Canadian securities by $3.3 billion during December. StatsCan highlights that a large portion of this decrease was due to a large number of retirements in Canadian bonds, which represent almost half of the $28.2 billion in Canadian securities held. StatsCan adds that there was an actual increase in the purchase of Canadian corporate bonds, but this was offset by the large number of retirements in government-issued bonds.

In its analysis of StatsCan numbers, BMO Nesbitt Burns points out that the combination of a $28.2 billion inflow to Canadian securities and the $78.3 billion outflow to global securities left an overall net portfolio outflow of just over $50 billion last year. This was offset by a current account surplus of an estimated $26 billion and a large amount of foreign direct investment from takeovers of Canadian business.

BMO predicts the outflow of Canadian dollars into foreign equity to continue through 2007, but it doesn’t think the outflow will reach the record high of 2006. However, BMO does expect the current account to narrow since it’s doubtful that foreign takeover activity will match last year’s massive inflow, which should keep the Canadian dollar close to current levels by year’s end.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com