Canada's international transactions in securities

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Non-residents acquired $11.2 billion of Canadian securities in December as purchases of Canadian bonds continued to dominate foreign inflows. Canadian investment in foreign securities, which was up in November after four months of divestments, slowed to $663 million in December. Portfolio investment activity in 2009 was marked by unprecedented foreign acquisitions of Canadian securities to the tune of $109.4 billion, predominantly bonds.

Sustained foreign investment in Canadian bonds throughout 2009

December sustained the trend for foreign investment in Canadian debt securities that was evident for most of the year. Non-residents added $9.5 billion of Canadian bonds to their holdings in December. Foreign investment in federal bonds on secondary markets accounted for $5.3 billion; the remainder was mainly acquisitions of new provincial government bonds denominated in foreign currencies.

Non-residents invested $82.5 billion in Canadian bonds in 2009, almost equally split between net new issues and secondary market purchases. New issue activity abroad in the year was dominated by US dollar bonds of the provincial government and the corporate sectors, as borrowing costs declined and the Canadian dollar appreciated against the US dollar.

Secondary market transactions also generated sizeable foreign inflows in 2009, especially for federal government securities. As a result, foreign holdings of federal bonds increased by nearly 70% in 2009, in contrast to the previous trend of declining foreign holdings observed since 2002.

Non-residents adjusted their holdings of Canadian short-term securities in December, replacing federal Treasury bills with paper issued by private corporations. In contrast to significant acquisitions of federal bonds, non-residents shed a considerable amount of federal paper in the second half of 2009. Over the year, the interest rate differential between long- and short-term benchmark debt securities has widened, favouring investment in long-term instruments.

New issues dominate foreign activity in Canadian equities

Non-residents added $1.2 billion of Canadian shares to their portfolios in December. This was made up of $1.9 billion of new portfolio shares, and a divestment in secondary markets. Canadian stock prices appreciated 2.6% in December.

Foreign investment in Canadian equities rebounded in 2009 in relation to activity in 2007 and 2008, to reach $26.2 billion. Inflows in the year were almost equally split between new portfolio shares and secondary market acquisitions. The former reflected the strengthening of Canadian direct investment abroad, resulting in Canadian firms issuing new shares to non-resident portfolio investors of acquired foreign firms. The latter reflected the solid performance of the banking sector and a significant rebound in commodity prices.

Canadians move away from foreign debt securities

Canadian investors sold foreign debt instruments in December, disposing of $801 million worth of foreign money market paper but adding $337 million of foreign bonds.

December's divestment was in US government Treasury bills as resident investors removed $1.3 billion from their holdings, offsetting the acquisitions in November. Nevertheless, Canadians added $1.8 billion worth of US government Treasury bills over the course of the year. Most of the acquisitions in 2009 occurred over the first two months of the year, prior to the rebound in major global stock markets.

Canadian investment in foreign bonds was in non-US bonds in December, led by a renewed interest in maple bonds. Over the year, however, divestment of US government bonds and the further drying-up of the maple bond market resulted in a second year of reduced holdings of foreign bonds.

Canadian investment in foreign equities rebounds

Canadian investors added $1.1 billion of foreign equities to their portfolios in December after three months of sales. December's investment was entirely channelled to US equities. US stock prices gained 1.8%, led by the banking and resources sectors.

Overall Canadian investment in foreign stocks bounced back in 2009, led by the pension funds sector. Although investment in foreign equities doubled from 2008, it remained well below the average level observed from 2005 to 2007 following the elimination of the foreign content limit for Canadian registered retirement plans.

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 December 2009 issue of Canada's International Transactions in Securities (67-002-X, free) will soon be available.

Data on Canada's international transactions in securities for January will be released on March 18.

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; yiling.zhang@statcan.gc.ca), Balance of Payments Division.