Canada's international transactions in securities

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Cross-border investment activity resulted in acquisitions of $10.4 billion of Canadian securities by non-residents in January. This more than compensated for the divestment in the previous two months. This activity took place against a backdrop of heightened government borrowing, which extended into January.

For their part, Canadian investors acquired foreign securities for the first time in five months, adding $4.2 billion to their portfolios. Investment was comprised of foreign short-term debt instruments and US equities, as US share prices dropped to a six-year low.

Non-residents favour Canadian federal government debt instruments

Non-residents picked up $10.7 billion of Canadian debt instruments in January, the largest investment since November 2006. While significant acquisitions of short-term debt instruments continued, non-residents increased investment flows to Canadian bonds.

Chart 1

Non-residents continued their heavy acquisitions of Canadian money market instruments, buying $4.2 billion in January. Foreign holdings of Canadian paper have increased by over 50% in three months. Foreign investors also replenished their holdings of Canadian bonds by adding $6.5 billion worth.

Debt securities of the federal government attracted the bulk of foreign investment, reflecting government demand for funds since the fourth quarter of 2008. Non-residents acquired $4.4 billion of federal paper and $3.9 billion of federal bonds in January.

The remainder of the foreign investment in Canadian bonds was directed to debt instruments of provinces and private corporations, particularly issues denominated in US currency.

Foreign investors sell Canadian stocks

Non-residents sold $313 million of Canadian equities in January as prices fell 3.3%. Nevertheless, this was the mildest decline of equity prices among the major international stock markets. Divestment was focused on financial and non-precious metal mining sectors and may have reflected concerns over the performance of financial institutions and the dampened demand for resources. Non-residents did invest in shares of the Canadian gold mining sector.

Canadian investors add liquidity to their portfolios of foreign debt instruments

Canadian investors continued to reduce their holdings of foreign bonds in January in favour of more liquid foreign investments.

Transactions in US government securities resulted in an acquisition of $1.2 billion of US Treasury bills and a sale of an equal amount of US Treasury bonds. This reflected the ample supply of US Treasury bills in January. The sharp appreciation of the US dollar, which may have deterred investment in US securities over the last few months, levelled off in January.

Canadian investors also acquired $671 million of US corporate bonds, the largest amount since the outset of credit concerns in 2007. However, resident investors continued to shed non-US foreign bonds for a fourth month, fuelled by sell-offs of maple bonds (Canadian dollar denominated foreign bonds).

Chart 2

Canadian investors return to US equity market

Canadians purchased $4.1 billion of foreign stocks in January, the largest acquisition since May 2008. Nearly 80% of January's acquisition was in US stocks and was well-diversified across a number of industries. In January, US equity prices dropped to a more than six-year low, falling nearly 50% peak-to-trough since October 2007.

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 2009 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 20.

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 Éric Boulay (613-951-1872), Balance of Payments Division.