Canadians load up on foreign debt

Canadian investors poured $5 billion into foreign securities in September, making it the eighth straight month they added to their holdings, according to Statistics Canada.

All of that capital was invested in debt instruments, with foreign bonds totaling $3.9 billion and money market instruments worth $1.2 billion. U.S. Treasury bonds accounted for $2.3 billion, nearly half of the total and the largest investment in these issues since November 2002. Roughly half of the money market investments went oversees, with the rest split between U.S. government and non-government paper.

Equity holdings saw a decline of just $96 million, as purchases of U.S. stock plummeted to $352 million from $2.8 million in August. Overseas shares were hit by a sell-off totaling $448 million, reversing two months of purchases.

Foreigners invested nearly the same amount in Canada, with $4.9 billion in new investments, but with a preference of equities, which accounted for two-thirds of the total. The $3.2 billion purchase of stock marks a doubling from August, with American investors dominating the action, with $2.9 billion invested.

Over the course of the third quarter, foreign investors have purchased $7.6 billion worth of Canadian equity, with a preference, not surprisingly, for resource companies.

Foreigners also bought $1.9 billion (net) in Canadian bonds in September, making it the second most active month in 2005 for non-resident investors. Gross bond sales totaled $5.6 billion, which was offset by issue retirements worth $3.5 billion. Again, American investors dominated the market, accounting for $5 billion in gross bond sales.

Canadian money market instruments continued to be sold off to the tune of $242 million — a far cry from the $1.8 billion sell-off in August.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com