Cross border securities trade picks up

Foreign investors took a shine to Canadian bonds, making a massive investment of $11.3 billion in November 2006, according to the latest data provided by StatsCan. That makes it the second highest month on record in terms of bond sales.

Corporate issues were the most popular, attracting $5.1 billion in foreign capital, while $3.4 billion federal bonds and $2.4 billion in provincial bonds were sold. Practically all of the federal bonds were existing issues, while the corporate and provincial debt was freshly issued.

Across asset classes, foreigners bought $11.0 billion in securities for the month, driving total investment for the first 11 months of the year to $28.9 billion. That’s just better than average for the past five years, but far exceeds the $8.5 billion invested in the first 11 months of 2005.

Europeans set a new bond purchasing record of $4.9 billion for the month while Americans bought $4.3 billion in debt.

Investors cashed out of their money market holdings to the tune of $1.7 billion, with $1.5 billion in the form of government T-bills and federal enterprises.

Equities saw a modest net sales increase of nearly $1.5 billion. Americans bought $3.2 billion in stocks, while Europeans dumped $1.0 billion.

Canadian investors continued to increase their foreign holdings in November, buying $3.7 billion in foreign equities and $1.1 billion in foreign bonds. On a year to date basis, Canadians poured $72.5 billion into foreign securities.

Of the $3.7 billion in net foreign investment in November, only $317 million went into U.S. stocks, while $3.4 billion headed overseas. Despite venturing further afield, Canadians stuck to the industries they know best, favouring mining, energy, banking and insurance.

Canadians also picked up $496 million in foreign money market paper in the month, again showing an increased interest in overseas issuance, rather than American.

StatsCan reports that most foreign investments were made through mutual funds and pension funds. According to IFIC data for November, year to date sales of Foreign Common Shares funds totaled $5.7 billion, while U.S. Common Shares funds saw a year to date sell off of $853 million. Foreign Bond and Income funds also saw a year to date sell off totaling $1 billion. Based on this data, it is clear that pension fund managers are doing most of the heavy lifting in giving Canadians exposure to foreign markets.

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