Foreign investors acquired $28.4 billion of Canadian securities in January, following a significant divestment in December. Meanwhile, Canadian investors reduced their holdings of foreign securities by $8.8 billion, led by sales of US shares.
As a result, international transactions in securities generated a record net inflow of funds of $37.2 billion in the Canadian economy in January.
Foreign investors add government debt securities to their holdings
Non-resident investors acquired $28.4 billion of Canadian securities in January, the highest amount since May 2017. The investment in January more than offset the large divestment of $20.5 billion recorded in December 2018.
Foreign acquisitions of Canadian debt securities totalled $19.4 billion in January. The bulk of the investment was in government debt securities, mainly federal government instruments. Non-resident investment in federal government bonds reached a record $12.9 billion in January, and mainly targeted secondary market purchases of Canadian dollar-denominated instruments. In addition, the Government of Canada issued a three-year US$3.0 billion global bond over the month. This activity contrasted with the general divestment pattern observed for these instruments in 2018.
Meanwhile, foreign investors reduced their holdings of private corporate bonds by $1.3 billion in January, the second consecutive month of divestment. Canadian long-term interest rates decreased by six basis points and the Canadian dollar appreciated against the US dollar by 2.8 US cents, following a depreciation of 1.9 US cents in December.
Non-resident investors resumed their acquisitions of Canadian money market instruments in January by adding $5.1 billion to their holdings. Foreign acquisitions of provincial government paper denominated in US dollars accounted for most of the investment activity. Canadian short-term interest rates edged down in the month.
Foreign investment in Canadian equities amounted to $9.0 billion in January, the largest investment since February 2017. For a second straight month, issuances of new Canadian shares to non-resident portfolio investors, resulting from cross-border mergers and acquisitions, led the activity. The energy and mining sector accounted for the bulk of foreign investment in the month. Canadian stock prices, as measured by the Standard and Poor’s / Toronto Stock Exchange composite index, were up by 8.5% in January.
Canadian investors continue to sell US shares
Canadian investors reduced their holdings of foreign securities by $8.8 billion in January, the largest divestment since April 2017. The divestment was in equities and was moderated by purchases of foreign debt securities.
Canadian holdings of foreign equities declined by $10.3 billion in January, mainly US shares. Investors sold $9.0 billion of US shares, the third straight monthly reduction and the largest since April 2018. The divestment in US shares over the last 12 months has totalled $33.4 billion. US stock prices were up by 7.9% in January, following a decrease of 9.2% in the previous month.
Canadian investment in foreign debt securities totalled $1.5 billion in January, as purchases of bonds more than offset sales of money market instruments. Acquisitions of US corporate bonds were the main contributor to the investment activity in the month.