Canada's international transactions in securities

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Non-residents cut a sizeable $4.3 billion of Canadian securities from their holdings in November. Foreign holdings of Canadian shares were reduced as stock prices retreated 33% over the past three months. In addition, non-residents significantly adjusted their portfolio of Canadian debt instruments in favour of more liquid short-term assets.

Chart 1

For their part, Canadian investors continued to repatriate funds from foreign markets in November. Divestment in foreign securities slowed to $2.6 billion from an all time peak of $12.3 billion in October. Canadian investors made moderate acquisitions of foreign equities but continued to stay away from foreign debt instruments, in particular US government securities.

Non-residents move from Canadian bonds to money market instruments

Non-residents cut $5.4 billion of Canadian bonds from their holdings in November, the largest disposal recorded since December 2005. Of this activity, two-thirds were net retirements of US dollar-denominated instruments, primarily federal government bonds. The remaining reduction was mainly attributable to secondary market sales of Canadian dollar-denominated bonds issued by the federal government and its enterprises.

However, foreign investors replenished their portfolios with Canadian short-term instruments. They added $4.1 billion of these instruments in November, the largest investment since June 2006. Most of the foreign investment was in federal government paper, equally split between US and Canadian dollar-denominated instruments. In November, the net new issues of federal government paper remained on a par with the record activity set the month before.

Foreign investors sell Canadian shares as prices continue to decline

Non-residents divested $3.0 billion of Canadian stocks, as prices dropped further and reached their lowest level in nearly four years. The Standard and Poor's / Toronto Stock Exchange composite index has fallen 33% since the end of August, led by declines of around 50% in the energy and information technology sectors. November's reduction in foreign holdings of Canadian shares applied to nearly all sectors of the Canadian economy.

Canadian investors continue to reduce their holdings of US debt instruments

Canadian investors continued to shed foreign debt instruments in November as they sold $1.7 billion of bonds and $2.0 billion of money market instruments. This marked the sixth consecutive monthly divestment in foreign debt instruments. Investors have removed $14.8 billion of foreign bonds from their holdings over the last six months.

Chart 2

Overall, market conditions did not favour Canadian portfolio investment abroad. During the six-month period ending in November, the Canadian dollar fell 20% to 80.8 cents US. Meanwhile, Canadian short-term interest rates stood about 150 basis points above US rates in November, the largest gap posted since December 2003.

November's activity was mainly driven by the reduction in holdings of US government debt instruments. In particular, Canadian investors sold $1.9 billion of US government bonds, principally the five-year benchmark bond. At the short-term end of the spectrum, investors sold $2.2 billion worth of US Treasury bills as short-term interest rates in the US approached zero in November.

Investors did, however, make moderate acquisitions of US corporate debt securities, mainly US federal enterprise bonds offering attractive yields and money market paper issued by financial corporations.

Canadians resume acquisitions of foreign equities

Canadian investors resumed purchases of foreign shares in November. They acquired $1.0 billion, focusing on a well-diversified basket of equities tracking major US market indexes. US stock prices, as measured by the Standard and Poor's composite index, have dropped 30% since the end of August.

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 November 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 December will be released on February 16.

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.