Canada's international transactions in securities

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October again saw strong acquisitions of foreign securities by Canadian investors, a continuation of a trend dating back to February 2005. They bought $6.8 billion worth over the month, with foreign bonds accounting for over 80% of the value. So far in 2006, purchases of foreign securities have amounted to $68.5 billion, easily surpassing the record annual purchase of $63.9 billion in 2000.

Following a $2.9 billion sell-off in September, foreign investors reduced their holdings of Canadian securities by $5.0 billion in October. However, transactions this month were dominated by a large foreign takeover of a Canadian company whose foreign portfolio shareholders exchanged their shares for cash.

Maple bonds fuel the purchases of foreign bonds

Canadians bought a record $5.7 billion worth of foreign bonds in October, continuing a string of record purchases over the first three quarters of 2006. Purchases were almost equally split between overseas bonds and US bonds.

Nearly half of October's purchases went to buy maple bonds, the Canadian-dollar denominated foreign bonds. Of all the maple bonds bought over the month ($2.7 billion worth), over 80% were issued by overseas issuers, with the remainder by US corporations.

Heavy acquisition of US corporate paper continues

After buying a record $5.0 billion worth in the third quarter, Canadians purchased $458 million of foreign money market paper in October, led by Canadian-dollar denominated paper. Canadian-dollar foreign paper has accounted for nearly 50% of all foreign paper acquired so far in 2006.

In October, Canadian investment in US corporate paper remained strong at $662 million. Meanwhile, Canadians also bought $148 million of overseas paper while selling off $353 million of US treasury bills.

Canadians buy US shares but sell overseas shares

Canadians purchased foreign shares for the 21st consecutive month, amounting to $676 million in October. While acquisitions of US shares remained strong, totalling $2.3 billion, Canadians sold off $1.6 billion of overseas shares during the month.

Foreign takeovers drive the divestment in Canadian stocks

Following a $2.7 billion divestment in September, foreign portfolio investors sold a further $5.4 billion of their holdings of Canadian shares in October, the second highest divestment on record.

While sales of outstanding Canadian shares dominated September's activity, October's divestment was driven by foreign takeovers of Canadian companies whose foreign shareholders relinquished $8.7 billion worth of portfolio shares.

In fact, non-resident investors actually invested $3.3 billion in outstanding Canadian stocks over the month. This echoed the 5% rebound in Canadian stock prices as measured by the S&P/TSX composite. Shares of communication equipment manufacturing firms, mining and refinery firms, and financial intermediaries topped the investment list.

Non-residents buy Canadian bonds but sell Canadian money market paper

Non-residents increased their holdings of Canadian bonds by $757 million in October, driven by a $1.7 billion purchase of outstanding issues. This came after two consecutive months of divestment totalling $1.3 billion.

Foreign investment over the month was mainly in provincial government bonds, totalling $1.4 billion. October was a relatively quiet month for foreign investment in federal government ($226 million) and government enterprise bonds ($272 million). However, non-residents decreased their holdings of Canadian corporate bonds by $1.2 billion, largely due to retirements.

Geographically, there was a $3.3 billion divestment by American investors that was more than made up by overseas investors. This overseas investment came from Europe and emerging markets. On a currency basis, $2.1 billion worth was invested in Canadian-dollar denominated bonds. While some US-dollar denominated bonds retired in October, contributing to a $2.3 billion decline of foreign holdings, there was $883 million worth of buying in bonds denominated in other foreign currencies.

Meanwhile, non-residents sold off $399 million Canadian money market paper in October, after two consecutive months of buying totalling $1.2 billion. October saw foreign investors sell $1.0 billion worth of Canadian government t-bills and paper of its enterprises but acquire Canadian corporate paper for the third consecutive month ($626 million in October). On a regional basis, European and American investors sold off $598 million and $345 million respectively, which was partly offset with buying by emerging economies.

Available on CANSIM: tables 376-0018 to 376-0029, 376-0042, 376-0058 and 376-0063.

Definitions, data sources and methods: survey number 1535.

The October 2006 issue of Canada's International Transactions in Securities (67-002-XWE, free) will soon be available.

Data on Canada's international transactions in securities for November will be released on January 18, 2007.

For general information or to order data, contact Client Services (613-951-1855; infobalance@statcan.gc.ca). To enquire about the concepts, methods or data quality of this release, contact Yiling Zhang (613-951-2057), Balance of Payments Division

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