Canada's international transactions in securities

Foreign investors reduced their holdings of Canadian securities by $2.6 billion in July, only their second reduction of 2003. They divested $4.5 billion of debt instruments while making the largest acquisition of Canadian equities in 13 months, at $1.9 billion. Meanwhile, Canadian investors acquired $3.0 billion of foreign securities, mainly foreign bonds, their largest investment in eight months.

Foreign holdings of Canadian debt takes a sharp drop

Foreign investors reduced their holdings of Canadian debt by selling $4.0 billion of bonds and $0.5 billion of money market paper. The reduction in bonds comes after five consecutive months of buying, totalling $21.2 billion. Driving the reduction in July was the selling of $6.5 billion of federal government bonds, almost exclusively secondary-market issues. However, foreign investors did buy $2.6 billion of mainly new bonds issued by corporate and other government sectors.

This is the second straight month that foreign investors divested Canadian-dollar bonds, following five months of buying. This investment pattern broadly parallels the behaviour of the Canadian dollar, which in the first half the year had a phenomenal 17.1% rise against the US dollar, followed by a drop in value of a full three cents in July. At the same time, the differential between Canadian and American long-term rates fell sharply to 44 basis points, down from a level of about 100 basis points for most of the last year. American and European investors contributed $3.7 billion and $1.1, billion respectively, to July's large reduction in bond holdings, while Asian investors again went against the trend by purchasing $0.8 billion.

Foreign investors reduced their holdings of Canadian money market instruments by $0.5 billion in July, their third consecutive divestment and fifth in the first seven months of 2003. This brought their year-to-date divestment to $2.2 billion, almost the reverse of the $1.9 billion they invested in the same seven-month period of 2002. July's divestment came solely from European and other foreign investors, while Americans invested a small amount. In July, a drop in Canadian short-term interest rates, compared with virtually no movement in US rates, caused the differential to shrink by 24 points to 191 basis points.

Purchases of Canadian stocks highest in over a year

With Canadian stock prices recording their fourth consecutive monthly gain, foreign investors made their largest investment in 13 months, purchasing a significant $1.9 billion worth in July. Some $1.7 billion came by way of investment in secondary-market shares, the largest in that market since January 2001. It was heavily weighted towards shares in the Canadian financial sector. The major portion of this investment in July came from American investors, with a smaller portion coming from Europeans.

Canadian investors buy heavily into foreign securities

Canadian investors made their seventh consecutive and largest investment in foreign bonds so far this year, purchasing $2.1 billion in July. This brought their cumulative year-to-date investment to $8.4 billion, easily exceeding the $6.2 billion they invested for all of 2002. Some three-quarters of investment so far in 2003 was directed to US treasury bonds, the balance being split between other US and overseas bonds.

Canadian investors purchased $0.8 billion of foreign stocks in July, as US stock prices also continued their rebound. Canadian investment in foreign stocks has been volatile over the first seven months of the year resulting in a net divestment of $1.7 billion. This reduction so far in 2003 has been roughly split between US and overseas equities.

Available on CANSIM: tables 376-0018 to 376-0029 and 376-0058.

Definitions, data sources and methods: survey numbers, including related surveys, 1532, 1534, 1535 and 1537.

The July 2003 issue of Canada's international transactions in securities (67-002-XIE, $14/$132) will be available soon. See How to order publications.

For more information or to enquire about the concepts, methods or data quality of this release, please contact Donald Granger (613-951-1864), Balance of Payments Division.