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Investing overseas

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Canadians have never been shy about investing money overseas. Recently, this trend has intensified. By the end of 2006, strong global markets had helped push Canadian investment in foreign securities to record levels.

By December 2006, Canadians had been adding foreign stocks, bonds and money market instruments to their portfolios for 23 straight months. In 2006 alone, this investment abroad reached a record $78.7 billion—64% went into debt instruments such as bonds, while the rest was invested in equities, such as stocks.

Foreign bonds, which companies or governments issue to raise money and are repaid at a fixed price and date, have been a hot investment choice. The Canadian government removed restrictions on foreign holdings in 2005. That shifted investors’ focus away from slow-growth domestic bonds to faster-growth foreign bonds. To diversify holdings toward stronger growth, many investors have turned to ‘maple bonds’—bonds that foreign companies issue in Canadian dollars. As a result, the amount invested in foreign bonds has multiplied over five-fold since 2003.

Canadians’ investment in foreign stocks can vary widely month to month—for instance, investment swung from $5.2 billion purchased in August 2006 to $952 million sold in September—but it has been very strong overall. In 2006, Canadians bought $28.3 billion of foreign stocks, the most since 2001. Of this total, 69% went into U.S. shares. Overseas mining, oil and gas, banking and insurance firms were popular stock picks for Canadian investors.