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Canada's international transactions in securities
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Following December's purchase of $1.3 billion, non-residents bought another $916 million worth of Canadian securities in January. Meanwhile, Canadians invested $131 million in foreign securities, down significantly from December as acquisitions of foreign money market paper were partially offset by sales of foreign stocks.
Foreign acquisition of Canadian bonds reaches a 10-month high
Non-residents added $6.4 billion worth of Canadian bonds to their portfolio holdings in January, the largest acquisition in the past 10 months. January's activity was concentrated in corporate bonds, with non-residents buying $3.3 billion of federal government enterprise bonds and $2.2 billion of private corporate bonds.
In addition, non-residents invested $1.2 billion in federal government bonds, all in outstanding issues. Investment in provincial government bonds was limited ($216 million) as purchases of outstanding bonds were partially offset by retirements.
Currency-wise, non-residents added new Canadian bonds denominated in US dollars while buying outstanding bonds denominated in Canadian dollars. On a regional basis, investment from the Unites States accounted for half of the month's foreign purchases. In January, the interest rate differential between Canada and the US favoured investment in Canada.
Related market informationIn January, the Canadian short-term interest rates fell 45 basis points to 3.41%. This was the largest monthly decline after a 74 basis point drop in August 2007 when global credit markets tightened. Meanwhile, US short-term interest rates were down 25 basis points to 2.75%, the lowest level since April 2005. In January, the US Federal Reserve eased its key interest rate by 100 basis points. Both Canadian and US long-term interest rates fell in January by 21 and 52 basis points respectively. Canadian interest rates ended the month at 3.88% while US rates stood at 3.78%. The interest rate differentials for both long- and short-term rates favoured investment in Canada in January. After a brief rebound in December 2007, Canadian stock prices tumbled 4.9%, finishing January at 13,155.1, as measured by the Standard and Poor's/Toronto Stock Exchange Composite Index. Meanwhile, the US stock prices plunged 6.1% as the Standard and Poor's Composite Index sank to 1,378.6 at January month end, the largest monthly decline since October 2002. The drop in share prices was widespread across nearly all sectors in both Canada and the United States. The Canadian dollar dropped 1.26 US cents by January close, exchanging for 99.62 US cents. Since November 2007, the Canadian dollar has been hovering around parity against its US counterpart. 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. |
Non-residents dispose of Canadian Treasury bills
Non-resident investors reduced their holdings of Canadian money market paper in January by $2.1 billion, after buying $782 million in December. Treasury bills accounted for over 80% ($1.8 billion) of January's foreign divestment. The balance was from a second consecutive monthly reduction in holdings of federal government enterprise paper ($387 million).
In January, Canadian short-term interest rates fell about 45 basis points, the largest monthly drop since August 2007 when the global credit crunch unfolded.
Takeover activities drive foreign divestment in Canadian portfolio shares
After a pause in December, non-residents disposed of $3.3 billion worth of Canadian portfolio shares in January. The divestment was exclusively due to foreign takeover activity, which resulted in a sizable amount of Canadian portfolio shares transferring to foreign direct investors.
However, foreign purchases of outstanding Canadian shares remained strong at $3.2 billion in January, up from a $1.2 billion acquisition in December. Gold and banking sectors, whose stock prices appreciated in January, topped the investment list.
Canadian holdings of foreign bonds steady after two months of divestment
Canadians acquired a nominal amount of foreign bonds ($48 million) in January, after two consecutive months of sizeable divestment driven by the sale of US government bonds. Canadian investment in US government bonds was reduced slightly in January ($92 million) as residents replaced holdings of shorter term-to-maturity bonds (2 years or less) with medium term-to-maturity bonds (5 to 10 years).
Meanwhile, investment in other types of foreign bonds posted a small increase ($140 million) in January. Since August 2007, the reduced activity in new issues of maple bonds (Canadian dollar-denominated foreign bonds) has been a main contributor to the slowdown in acquisitions of both US corporate bonds and non-US foreign bonds. The appreciating Canadian dollar, combined with the global credit crunch, contributed to increased costs related to the issue of new maple bonds.
Canadian acquisitions of foreign paper pick up
Canadian investors made adjustments to their holdings of foreign securities in January, selling off foreign stocks and acquiring money market instruments. January saw residents add $2.5 billion worth of foreign paper, a reversal from the stream of reductions totalling $12.8 billion since August 2007.
January's acquisition was equally split between US government Treasury bills ($1.4 billion) and US corporate paper ($1.2 billion), mostly Canadian dollar-denominated paper issued by the non-bank financial sector. In January, the Federal Reserve reduced its key interest rate by a notable 100 basis points to further ease credit conditions.
Canadians sell foreign stocks as the markets turn bearish
Canadians sold $2.4 billion worth of foreign stocks in January, a switch from purchases averaging $2.4 billion per month since October 2006. The bulk ($1.9 billion) of January's sell-off was in US stocks, when US stock prices experienced the largest monthly decline since October 2002, affecting almost all sectors.
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 January 2008 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 February will be released on April 21.
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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