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Canada's international transactions in securities
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Non-residents invested $1.2 billion in Canadian securities in December, largely equities. Over the year, foreign portfolio investors sold $33.8 billion worth of Canadian securities, largely reflecting high foreign-takeover activity and the subsequent relinquishing of Canadian portfolio shares to foreign direct investors.
For their part, Canadian investors acquired $1.9 billion worth of foreign securities in December, adding equities and further reducing debt instruments. The meltdown in the sub-prime mortgage sector and the resulting credit crunch have contributed to major divestments of foreign debt instruments. Since August 2007, Canadians have removed $20.0 billion worth of foreign debt instruments from their portfolios, which largely offset a $35.3 billion investment from January to July 2007.
Non-resident investors sell government bonds
December saw non-residents reduce $492 million from their holdings of Canadian bonds, after adding $4.8 billion in November. The drop was concentrated in federal government issues ($4.1 billion), largely outstanding bonds. Foreign investors also disposed of $614 million worth of provincial government bonds, mainly due to sizable retirements.
However, non-residents continued heavy acquisitions of federal government enterprise bonds, both new and outstanding issues. Overall, foreign investors picked up $3.9 billion in bonds issued by federal government enterprises, ending the quarter with a record $6.5-billion acquisition.
Related market informationIn December, Canadian short term interest rates decreased 5 basis points to 3.86%, while US rates dropped 27 basis points to 3.00%. Over the year, the interest rate differential between Canada and the United States has swung from 0.69%, favouring investment in the United States, to 0.86%, favouring investment in Canada. This reflected a more pronounced credit crunch in the US debt market. Meanwhile, Canadian long term interest rates inched up 2 basis points, while US rates increased 27 basis points. The resulting interest rate differential between the two countries increased to 0.21%, favouring investment in the United States. Canadian stock prices rebounded as the Standard and Poor's / Toronto Stock Exchange Composite Index increased by 1.1% in December, finishing the month at 13,833.1. Meanwhile, US stock prices were down for the second month as the Standard and Poor's Composite Index fell 0.9% to 1,468.4. For the year, these indices were up 7.2% and 3.5%, respectively. The Canadian dollar regained some ground, rising 0.88 cents US to end December at 100.88 cents US. Over the year, the Canadian dollar has appreciated 17.6% against the US dollar. Definitions The data series on international security transactions cover portfolio transactions in stocks, bonds and money market instruments for both Canadian and foreign issues. Stocks include common and preferred equities, as well as warrants. Debt securities include bonds and money market instruments. Bonds have an original term to maturity of more than one year. Money market instruments have an original term to maturity of one year or less. |
Currency-wise, non-residents increased holdings of US dollar-denominated Canadian bonds and reduced holdings of bonds denominated in other currencies. On a regional basis, British investors sold off $1.9 billion worth of Canadian bonds, while investments by American and Japanese investors remained robust.
Non-residents return to the Canadian money market
Foreign investors acquired $460 million worth of Canadian money market instruments in December, following two months of consecutive divestment totalling $1.0 billion. In December, the interest rate differential between Canada and the United States has further widened to 86 basis point, the largest spread since June 2004, in favour of investment in Canada.
December's investment was in private corporate paper ($569 million) and federal Treasury bills ($277 million), while non-residents reduced their holdings of federal government enterprise paper. The foreign acquisition of federal Treasury bills in December was a reversal from three consecutive months of divestment totalling $1.1 billion.
Foreign investors regain their interest in Canadian equities
Non-residents invested $1.3 billion in Canadian shares in December, a reversal from four consecutive months of divestments. December's investment was concentrated in outstanding shares ($1.2 billion), particularly those issued by the banking sector. In December, Canadian stock prices rebounded 1.1%, after a 6.4% decline in November.
Net new issues of Canadian shares were negligible in December ($58 million). Robust foreign acquisitions of new Canadian shares over the month just offset sales of portfolio shares to foreign direct investors due to foreign takeovers, a trend that has dominated 2007.
Over the year, foreign acquisitions of outstanding Canadian shares slowed significantly to $2.3 billion, after three years of strong investment averaging $16.3 billion. The annual increase in Canadian stock prices has eased from an average 16.2% from 2003 to 2006 to 7.2% in 2007. The rapid appreciation of the Canadian dollar may have also contributed to the slowdown of foreign investment.
Canadians continue significant disposals of foreign bonds
Canadian investors sold $2.6 billion worth of foreign bonds in December, adding onto November's $4.8 billion divestment. Two thirds ($1.8 billion) of the reduction was in non-US foreign bonds, almost exclusively maple bonds (the Canadian dollar-denominated foreign bond issues).
In addition, Canadians continued to dispose of US government bonds, $809 million in December for a total of $5.8 billion for 2007. This year marked the first annual reduction in US government bonds in a decade. On the other hand, Canadian holdings of US corporate bonds were largely unchanged in December. Over the year, there was a record $13.1-billion investment in US corporate bonds, fuelled by strong purchases of US maple bonds over the first six months of 2007.
Canadian divestment in foreign money market instruments is extended
Canadians reduced their position in foreign money market paper for the fifth consecutive month, cutting $904 million from their holdings in December. Divestment over the month was all in US money market instruments, largely in US government Treasury bills ($776 million). In December, US short-term interest rates further dropped to 3.0%, the lowest level since July 2005.
At the same time, Canadian investors made modest adjustments to their portfolios, adding non-US foreign paper ($216 million) and reducing US corporate paper ($344 million).
Largest acquisition of foreign shares in eight months
Canadians bought a substantial amount ($5.4 billion) of foreign stocks in December, the highest level of acquisitions since May 2007. Over two-thirds were in US shares, in the context of declining US stock prices.
Meanwhile, Canadian investors added $1.7 billion worth of non-US foreign equities in December, following small adjustments to their holdings over the previous three months. Canadians favoured investment in US stocks in 2007, acquiring $19.1 billion worth compared with an $11.5-billion investment in non-US stocks.
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 December 2007 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 January will be released on March 19.
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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