Foreign investment in Canadian securities totalled $16.8 billion in September, up from $9.8 billion in August. At the same time, Canadian investment in foreign securities slowed to $2.4 billion in September, after reaching $12.1 billion in August.
As a result, international transactions in securities generated a net inflow of funds of $14.4 billion in the Canadian economy in September, for a total of $39.6 billion in the third quarter. This activity was led by strong acquisitions of Canadian bonds.
Foreign investment in Canadian bonds remains strong
Foreign investment in Canadian securities increased to $16.8 billion in September, from an investment of $9.8 billion in August. The bulk of the inflows targeted the Canadian bond market in the month. Foreign acquisitions of Canadian securities reached $51.6 billion in the third quarter, led by record foreign acquisitions of federal government bonds.
Non-resident acquisitions of Canadian bonds reached $18.7 billion in September. Secondary market purchases of federal government bonds, mainly bonds with short-term maturities, contributed the most to the investment activity. In addition, non-resident investors added $2.8 billion of federal government business enterprises bonds and $5.9 billion of private corporate bonds to their holdings.
Canadian long-term interest rates were up by 29 basis points in September. The Bank of Canada raised its benchmark overnight interest rate by 25 basis points to 1% in September, the second such increase in the quarter. Meanwhile, the Canadian dollar appreciated slightly against its US counterpart in the month.
Foreign investors reduced their holdings of Canadian money market instruments by $6.0 billion in September, the largest decline since March 2014. A reduction in foreign holdings of federal government paper accounted for most of the divestment, reflecting some movement of funds from short to longer term investments during the month, and more generally over the quarter. Canadian short-term interest rates increased by 28 basis points in the month.
Foreign investment in Canadian equities targets the financial sector
Foreign investment in Canadian equities amounted to $4.1 billion in September, the highest investment in four months. Foreign purchases mainly targeted shares from the finance and insurance sector, specifically those from the banking sector. This was the eighth consecutive month of foreign acquisitions of Canadian shares. Canadian stock prices were up by 2.8% in September.
The total value of Canadian equity and investment fund shares held by non-resident investors was $654.0 billion as of the end of September, with about 95% in listed shares. On a sector basis, the finance and insurance as well as the management of companies together accounted for approximately half of the overall holdings.
Combined with foreign holdings of $1,404.2 billion in Canadian debt instruments, securities are an important component of Canada’s overall international liabilities.
Canadian investment in foreign securities slows
Canadian investors added $2.4 billion of foreign securities to their holdings in September, down from a $12.1 billion investment in August. Acquisitions of both foreign equity and debt securities were down significantly in the month. Overall, Canadian purchases of foreign securities reached $12.0 billion in the third quarter of the year, up from $7.8 billion in the second quarter. Activity in the quarter was led by acquisitions of US securities.
Canadian investment in foreign equities amounted to $1.7 billion in September, following acquisitions of $7.2 billion in August. The bulk of the investment was in US shares. US stock prices were up by 1.9% in the month.
Canadian investors acquired $686 million of foreign debt securities in September. Acquisitions of US instruments, mainly Treasury bills and corporate bonds, were moderated by sales of non-US instruments. US long-term interest rates were down by one basis point, while short-term rates were up by two basis points in the month.