Foreigners park their funds in Canada

Canada continues to be a favourite parking spot for nervous money. Foreign investors acquired $9.5 billion worth of Canadian securities in October, according to a Statistics Canada report.

Those flocking to Canada are largely taking refuge in Canadian bonds and stocks. The report said non-resident investors added $7.8 billion worth of Canadian bonds to their portfolios in October, including $5.1 billion in private corporate bonds, with the bulk in new U.S. dollar denominated bonds issued by financial and transportation forms.

With this inflow, net foreign investment in securities has climbed to $36.5 billion so far in 2010, making it the highest ever annual gain.

“Canada’s international securities transactions data for the month of October reflected an international investor community apparently comfortable with Canadian risk,” said Stewart Hall, economist, HSBC Securities (Canada). “Over the course of the month, foreign investors digested a net $9.5 billion in Canadian securities, primarily corporate bonds and equity; a number not far off of the market median and our own forecast at $10 billion.”

Resurgent Canadian equities also found favor with foreign investors who scooped up $3 billion of stocks in the secondary market. Shares of chemical and fertilizer producers proved to be the biggest pull for investors from abroad. It’s little surprise that Canadian stock prices continued their upward trend in October, rising 2.5%, and ending the month at the highest levels since August 2008, said the report.

What attracts foreign investors to Canada, in addition to its safe haven image, is the lure of the loonie, which they perceive as the U.S. dollar minus the baggage of uncertainty, says Hall.

Non-resident investors reduced their holdings of federal government bonds by $755 million, mainly shorter term-to-maturity instruments, in the same month. They also sloughed off $1.2 billion of Canadian paper, mainly due to retirements of foreign-currency denominated instruments issued by the federal government and its enterprises, as well as by provincial governments.