Canada's international transactions in securities

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Increased government borrowing in Canada and in the United States, along with declining global equity prices, maintained cross-border portfolio investment activity in February. Foreign investors added $6.1 billion of Canadian securities to their portfolios, investing in both bonds and equities. For their part, Canadian investors acquired $2.9 billion of foreign securities with acquisitions comprised of equity and money market instruments.

Non-resident investors demand for Canadian bonds extends into February

Acquisitions of Canadian bonds carried over into February, as non-residents picked up a further $4.2 billion to add to the $6.5 billion acquired in January. Nearly two-thirds were federal government enterprise bonds, with the remainder almost equally split between federal government and private corporate bonds.

The overall supply of Canadian federal government debt remained high, in line with the previous four months, but was mainly comprised of long-term instruments in February. As a result, non-residents acquired $1.1 billion of federal government bonds, mainly 5-year and 10-year benchmark bonds. Foreign investment in Canadian corporate debt also focused on long-term instruments. Non-residents picked up $2.0 billion of new government business enterprise bonds as well as $1.4 billion of new issues of private corporations.

In contrast, non-residents reduced their holdings of Canadian money market instruments by $482 million in February, the first divestment in nearly a year. Foreign divestment was driven by activity in government business enterprise and private corporate short-term paper, mainly bank paper. Foreign acquisitions of Canadian Treasury bills were also down sharply from January, reflecting much lower net new issues in February.

Non-resident investors focus on Canadian gold and oil company equities

Foreign investors acquired $2.4 billion of Canadian equities in February, favouring gold and oil companies. On the other hand, non-residents reduced holdings of shares of information technology and financial firms, which were among the worst performing sectors of the Standard and Poor's / Toronto Stock Exchange index in February. By month-end, Canadian stock prices reached their lowest level since November 2003.

Canadian investors turn to US government debt instruments

Demand for short-term foreign assets was evident again in February as Canadian investors purchased $1.1 billion of foreign money market instruments, almost all US government debt. In contrast, they reduced their overall holdings of foreign long-term debt instruments for a 10th straight month. This was a result of retirements of maple bonds (the Canadian dollar-denominated foreign bonds), a market that has stagnated since the outset of global credit turmoil in 2007.

Canadian investors acquired $1.2 billion of US Treasury bills in February, and invested in US government bonds for the first time since April 2008. US government borrowing increased significantly, pushing up yields on US government debt instruments.

Canadian investment in foreign corporate shares continues

Canadians invested a further $2.5 billion in foreign equities in February. Non-US foreign stocks gained popularity over the month, with acquisitions of $1.6 billion, mainly shares of European oil and gas exploration firms.

Canadian investors also added a further $880 million of US equities to their portfolios, as stock prices continued to decline. This activity was again composed of a well-diversified basket of US securities. By the end of February, US stock prices, as measured by the Standard and Poor's 500 index, fell to their lowest level since October 1996.

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 February 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 March will be released on May 21.

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.