Canada's international transactions in securities

Canadian investors repatriated substantial funds from international markets, as they sold $12.3 billion of foreign securities in October—the largest divestment on record. This activity took place against a backdrop of rapidly deteriorating global financial conditions on credit and equity markets. US equity prices fell a further 17% in October, on the heels of a 9% decline in September. In addition, domestic demand for foreign securities was likely adversely affected by the Canadian dollar posting its largest monthly depreciation against the US dollar in more than half a century.

Chart 1
Canadian portfolio investment in foreign securities

Canadian divestment was widespread in October, covering all types of foreign portfolio instruments. Part of the proceeds were likely placed in Canadian liquid short-term instruments, with Treasury bill issues up strongly in the month.

In contrast, foreign investors' demand for Canadian securities rebounded, following three consecutive months of divestment. Foreign portfolio investment reached $2.8 billion and was dominated by the acquisition of Government of Canada bonds on secondary markets.

Canadian investors dump US bonds

Canadian divestment of foreign bonds continued with the sale of $6.2 billion in October—the largest disposal of such securities to date. This activity was focused on US government bonds for a second consecutive month and was largely accounted for by bonds with a term to maturity of 5 to 10 years.

The balance of the divestment was in non-US bonds and amounted to $1.7 billion, mainly reflecting retirements of maple bonds. This component of the Canadian credit market has largely stagnated since the second half of 2007, after having grown rapidly in the previous 18 months.

Holdings of foreign paper reduced

Canadians reduced their holdings of foreign money market instruments by a modest $299 million in October. This included a sizeable reduction in foreign non-financial corporations' paper, as divestment shifted from financial to non-financial corporate paper in October. In addition, Canadian investment in US government Treasury bills slowed to $501 million.

Two factors likely dampened Canadian investors' interest in foreign short-term paper. By month end, Canadian short-term interest rates exceeded those in the United States by 1.3%, the largest gap since January 2004. At the same time, the Canadian dollar lost nearly 11 cents against the US dollar over the month.

Canadian sales of foreign equities in line with falling global stock markets

Canadians investors sold $5.8 billion of foreign stocks in October. These sales completely offset the amounts acquired over the previous quarter. Over 60% of this activity involved investments in American corporations, which made this the largest sale of US shares by Canadian investors recorded on a monthly basis.

Selling touched nearly all sectors of the US economy, as stock prices fell nearly 17% in the US—the largest monthly decline since October 1987. As a result, Canadian holdings of foreign equities were further reduced by significant unrealized capital losses in the month.

Foreign investment resumes for Canadian bonds and slows for paper and equities

Non-residents added $1.3 billion of Canadian bonds to their holdings in October, almost all Canadian dollar-denominated bonds. This activity reflected a $2.9 billion acquisition of federal government bonds on secondary markets, mainly bonds with a term to maturity of 5 to 10 years. This was partly offset by retirements of bonds issued by provincial governments and private corporations. Overall, on domestic and international markets, retirements of Canadian corporate bonds (excluding the securitization sector) exceeded new issues in October, contrasting with the previous nine months of robust borrowing activity.

Chart 2
Foreign portfolio investment in Canadian securities

Foreign acquisitions in Canadian money market instruments amounted to $513 million in October, half the inflows recorded for September. A sizeable amount of the month's investment was in paper issued by provincial governments, and, in contrast to bonds, comprised only instruments denominated in foreign currencies, mainly US dollars.

Foreign investment of $988 million in Canadian equities largely reflected a transfer of assets from direct to portfolio investors. Secondary market transactions amounted to a modest $131 million foreign divestment in Canadian shares, as Canadian stock prices fell 17% in October and net new issues dried up.

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 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 November will be released on January 19, 2009.

For more 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.

Table 1
Canada's international transactions in securities