Canadian investors reduced their holdings of foreign securities by $6.2 billion in September, all non-US foreign instruments. At the same time, foreign investors purchased $3.3 billion of Canadian securities, largely equities.
As a result, Canada’s international transactions in securities posted a net inflow of funds into the economy of $9.5 billion in September. However, for the third quarter as a whole, portfolio investment transactions generated a net outflow of funds from the economy of $3.0 billion.
Canadian investors sell foreign securities following large acquisitions in August
Canadian investors reduced their portfolio of foreign securities by $6.2 billion in September, the largest divestment since January. Holdings of foreign debt securities were down by $5.1 billion. A record divestment in non-US foreign bonds of $5.9 billion was moderated by a $2.1 billion acquisition of US corporate bonds in the month.
Canadian investors sold $1.1 billion of foreign equities in September. They acquired $3.2 billion of US shares but reduced their holdings of non-US shares by $4.3 billion. US stock prices were down 2.6% in the month.
Foreign investment in Canadian securities focuses on equities
Non-resident investors resumed their acquisitions of Canadian shares by adding $3.2 billion to their holdings in September. This activity followed two straight months of divestment in these instruments. On a quarterly basis, foreign holdings of Canadian shares decreased by $9.2 billion in the third quarter, the highest such decline since the first quarter of 2013.
Total foreign investment in Canadian bonds slowed to $896 million in September, as acquisitions of corporate bonds were largely offset by a divestment in government bonds. Foreign investment in Canadian corporate bonds reached $5.7 billion, mainly private corporate instruments denominated in non-US foreign currencies. The $4.8 billion decline in non-resident investors’ holdings of government bonds included both federal and provincial bonds. The decrease in federal government bonds was the largest since December 2014, while exposures to provincial government bonds were down for an eighth straight month.
Foreign holdings of Canadian money market instruments declined by $766 million in September. A reduction in private corporate paper of $3.0 billion was partially offset by a $2.1 billion investment in federal government business enterprise paper. Canadian short-term interest rates were up by six basis points, and the Canadian dollar depreciated against the US dollar by 1.1 US cents in the month.
Currency composition of Canadian bonds held by non-residents varies by sector
The total value of Canadian bonds held by non-resident investors was $1,067.6 billion at the end of September. The currency composition of Canadian bonds held by foreign investors differs depending on the sector of issuer of these instruments. For federal government bonds, over 90% of foreign holdings were denominated in Canadian dollars at the end of September.
In contrast, nearly three-quarters of foreign holdings of Canadian private corporate bonds were in instruments denominated in US dollars. A large proportion of foreign holdings of other Canadian government bonds, mainly provincial bonds, were in foreign currency denominated instruments, including US dollar and other non-US foreign currencies. Since 2007, the proportion of Canadian bonds denominated in Canadian dollars has generally increased for all sectors.