Foreign investors spurned Canada while markets struggled in September

(November 25, 2002) While Canadian investors pulled money from mutual funds in September, foreign investors sold Canadian equities and money market paper. Foreign investors reduced their holdings of Canadian securities by a net $1.6 billion in September, said a report by Statistics Canada today.

North American equity markets were weak in September — for example, the S&P/TSX composite index fell 6.5% — and foreigners sold $1.3 billion in Canadian equities that month. Most of these equities were secondary market shares. In its monthly report on international transactions in securities, Stats Canada noted there were inflows from merger-and-acquisition activity and Canadian firms raising capital in foreign markets.

Canadian money market instruments also came under selling pressure. Investors in foreign countries unloaded $0.8 billion in money market paper in September.

“Foreigners added $0.5 billion worth to their holdings of Canadian bonds in September following the $2.6 billion investment in August,” said the Statistics Canada report. “Corporations continued to tap into foreign markets, issuing $3.1 billion of new bonds in these markets in September and retiring just $1.6 billion of such debt.”

The Investment Funds Institute of Canada reported net redemptions of $1.1 billion, excluding reinvested distributions, in its monthly fund sales report for September. Fund sales declined again in October to run the string of net redemptions to seven months.

Canadians showed a distinct preference for foreign bonds in September, against a backdrop of struggling global equity markets, as they invested a net $1.7 billion in global securities.

“Canadian investors acquired $1.8 billion in foreign bonds in September, their largest investment in seven months,” said Stats Canada. The U.S. Treasury was the preferred foreign bond.

Foreign equities were spurned by Canadians, who sold a net $63 million in these securities.

September’s net investment by Canadians was a marked turnaround from August, when Canadians sold $315 million in foreign securities. Foreign investors bought a net $1.57 billion that same month.

On a year-to-date basis to September, foreigners had purchased a net $5.4 billion in Canadian securities, while Canadians bought $19.8 billion in foreign shares, bonds and money market instruments. Both totals are well below the level of transactions at the same point in 2001.

Filed by Jim MacDonald, Advisor.ca, jmacdonald@advisor.ca.

(11/25/02)