Foreign investments drive shift, with a focus on government debt
In January, Canada witnessed a significant shift in its international transactions in securities, marked by a notable foreign investment in Canadian securities and a reduction in Canadian holdings of foreign securities, according to Statistics Canada.
Foreign investments in Canadian securities amounted to $8.9 billion monthly, primarily concentrated in government debt securities. Concurrently, Canadian investors pulled back $7.6bn from foreign securities, predominantly through sales of equity securities.
This combination of movements resulted in a net inflow of $16.5bn into the Canadian economy.
The inflow was characterized by strong interest from foreign investors in government debt securities, marking a third consecutive month of investment in this area.
January's activity was particularly robust in the public sector debt market, with foreign acquisitions totaling $21.3bn—the most significant investment since November 2021. This surge was driven by substantial purchases of federal government debt instruments ($14.1bn) and securities from government business enterprises ($6.6 bn).
However, this interest was tempered by a significant reduction in private corporate money market instruments holdings, with a record divestment of $15.5bn, mostly involving the banking sector's retirements.
Foreign investment in Canadian shares was relatively muted, with purchases on the secondary market being offset by retirements, despite a slight increase in the Standard and Poor's (S&P)/Toronto Stock Exchange composite index by 0.3 percent in January.
On the flip side, Canadian investors significantly reduced their foreign securities holdings by $7.6bn in January, following a record $29.4bn investment in December 2023. This reduction was mainly in foreign equity securities, totaling $14.8bn, evenly distributed between US and non-US shares.
This marked the highest divestment activity in a year. Despite this, Canadian investors increased their foreign bond holdings by $8.1bn, focusing primarily on US government and international organization bonds.
