Foreigners bought Canadian in January: StatsCan

Foreign investors continued to pour money into Canada in January, the latest month for which StatsCan has data. Non-resident investors bought $916 million worth of Canadian securities, down from $1.3 billion in December.

Debt issues were the most popular investments, as equity markets fell off a cliff in January. Foreign investors snapped up $3.3 billion worth of federal government enterprise bonds and another $2.2 billion in private corporate bonds.

On the government side, federal bonds saw inflows of $1.2 billion, while provincial bonds barely registered, with net inflows of $216 million. Not all fixed income vehicles were in favour, however, as T-bills were hit with a $2.1 billion sell-off.

The $6.4 billion total was the largest inflow of foreign capital to the Canadian bond market in 10 months.

The StatsCan report notes that U.S. investors accounted for half of the month’s foreign purchases, as Canadian interest rates were higher than American rates. Within the month, however, short-term rates fell by 45 basis points north of the border, making it the largest drop since the credit crisis first began in August 2007.

Foreign investors sold off $3.3 billion worth of Canadian equities, as the takeover of Alcan by Brazil’s Vale was finalized and the shares were retired. That divestment was almost counterbalanced by $3.2 billion in new purchases, largely in the gold and financial sectors.

Canadian investors shied away from foreign issues on the fixed income side, picking up just $48 million worth of foreign bonds. StatsCan attributes the low level of sales to the slowdown in maple bond issuance in the U.S.

Canadians pared their foreign equity holdings, selling off $2.4 billion worth of stock, with $1.9 billion of that total coming out of U.S. equity markets. Risk reduction appears to have been the order of the month, as $2.5 billion was invested into foreign money market paper, reversing the $12.8 billion sell-off trend that had been in place since August 2007.

U.S. T-bills and corporate paper made up the lion’s share of that investment, accounting for $1.4 billion and $1.2 billion, respectively.

All told, Canadians increased their overall foreign investment holdings by a paltry $131 million.

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