Foreigners buy Canadian: StatsCan

Foreign investors made an about-face in February, piling back into Canadian securities after a substantial sell-off in January, according to Statistics Canada’s monthly report on securities trading.

Non-residents acquired $4.8 billion worth of Canadian securities, with net sales of equities topping $5.1 billion in February. In fact, StatsCan reports that foreign investment in Canadian stocks was at a 10-month high, and was almost half the entire foreign investment total of 2006.

Regionally, American investors led the charge into Canadian equity, investing $5.4 billion, almost exclusively in outstanding shares. BMO Capital Markets in its analysis points out that the TSX largely became a safe haven for investors looking to avoid the market sell-off caused by the sub-prime mortgage crisis in the U.S.

Doug Porter, deputy chief economist with BMO Capital Markets, says that while interpreting why Canadian stocks increased in value is a lot of guesswork, he has some ideas of the motivators. “M&A activity was a factor,” he says. “I really think it was the run-up in commodity prices, especially in energy, that drove the demand for Canadian stocks.”

Foreign enthusiasm for domestic stock was not carried over to Canadian bonds. Foreign investors sold off more than $5 billion in Canadian bonds over the previous two months, and the trend continued into February, when an additional $468 million was sold off.

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Of course, cross-border investing is a two-way street, and Canadians continued to invest heavily in foreign securities, buying $6.2 billion worth during the month. Canadians purchased $1.9 billion in foreign stock during February, adding to the total of $8.4 billion they bought in the three preceding months. More than three-quarters of the month’s share purchases were in non-U.S. stock.

Canadians invested roughly the same amount in foreign money market paper as they did in stocks, around $1.9 billion, reversing a $1.8 billion sell-off of the month before. The StatsCan report adds that this was largely due to investment in overseas paper swinging from $1.5 billion to a near-record purchase of $2.0 billion.

Foreign bonds purchases by Canadians were also strong in February, with $2.3 billion in sales. This was a significant slowdown from the record $6.2 billion purchased in January. The only exception to this, says StatsCan, was Canadian preference for maple bonds — foreign bonds issued in Canadian dollars. Canadians bought $4.8 billion worth, surpassing January’s total of $4.6 billion.

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