Canada's international transactions in securities

Foreign investors added to their holdings of Canadian equities in September but reduced their investment in Canadian debt instruments.

Meanwhile, Canadian investors turned away from foreign bonds in September for the first time this year, following eight months of steady accumulation.

Foreign investors continue to buy Canadian stocks

Foreign investors acquired another $2.1 billion of Canadian stock in September to bring the total for the third quarter to $5.3 billion. This follows purchases of $2.6 billion worth in the second quarter. Canadian share prices have risen 17.0% over these two quarters.

American investors purchased $8.5 billion in Canadian equities over the last two quarters, while investors from other countries reduced their holdings by $0.6 billion.

Foreign holdings of Canadian debt continues to drop

Foreign investors continued to reduce their holdings of Canadian bonds in September, but by much less than in the previous two months. The small $0.7 billion reduction in September nevertheless brought the total decline since June to $12.9 billion, reversing about three-quarters of the $17.5 billion in foreign purchases in the first five months of 2003.

In September, there were $1.4 billion more in retirements of foreign-held Canadian bonds than there were in new placements abroad. Total retirements of $4.7 billion were dominated by federal government issues. New issues, which totalled $3.2 billion, were floated solely by federal business enterprises and private corporations.

From June to September, foreign holdings of Canadian bonds denominated in Canadian dollars declined by a total of $17.3 billion. However, foreign holdings of Canadian bonds denominated in other currencies, mainly US-dollars, have risen $4.4 billion. During this four-month period, the rapid appreciation of the Canadian dollar during the first part of the year took a pause.

This reduction in Canadian dollar-denominated bonds is in sharp contrast to the first five months of this year when the dollar appreciated rapidly and foreign investors purchased $16.5 billion of these bonds.

Foreign holdings of Canadian money market paper decline

Foreign investors reduced their holdings of Canadian money market instruments by $1.2 billion in September. This represents the seventh reduction in the first nine months of 2003, bringing the total cumulative reduction so far this year to $4.0 billion. This reduction was spread across several sectors, including $1.8 billion in provincial government, $1.6 billion in corporate and $1.2 billion in federal enterprise holdings. However, the total reduction over this nine-month period does include a $0.6 billion increase in foreign holdings of federal treasury bills.

In September, the gap between Canadian and US short-term interest rates fell to 164 basis points, its lowest level of the year. This reduced differential in favour of investing in Canada resulted from a drop of 13 basis points in Canadian short-term rates, while US rates were virtually unchanged at their recent historical lows.

Canadian investment in foreign securities falls

Canadian investment in foreign bonds fell $2.7 billion in September, with US treasury bonds taking the largest hit. This decline, the first in eight months, follows an accumulation of $8.9 billion in foreign bonds since January, which was made up of $6.6 billion in US treasury bonds, $1.4 billion in other US bonds and $0.9 billion in overseas bonds.

Canadian investors also reduced their holdings of foreign stocks by $177 million, after acquiring $3.9 billion worth over the previous four months.

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 September 2003 issue of Canada's international transactions in securities (67-002-XIE, $15/$142) will be available soon.

Data on Canada's international transactions in securities for October will be released on December 18.

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