Canada's international transactions in securities, December 2020
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Released: 2021-02-16
Canadian investors acquired an unprecedented $26.9 billion of foreign securities in December, largely purchases of US shares. Meanwhile, non-residents added $5.1 billion of Canadian securities to their holdings, the lowest investment in three months.
As a result, international transactions in securities generated a net outflow of funds of $21.9 billion from the Canadian economy in December. Nonetheless, for the whole year, cross-border portfolio investment generated a net inflow of funds in the economy of $87.1 billion in 2020.
Chart 1
Canada's international transactions in securities
Unprecedented investment in US shares
Canadian investment in foreign securities amounted to an unprecedented $26.9 billion in December, marking an eighth consecutive month of net purchases. Investment activity of the month was nearly all in foreign shares.
Canadian investors acquired a record $22.4 billion of US shares in December. Acquisitions mainly targeted investment fund shares tracking broad US market indices, as well as shares of large capitalization technology and pharmaceutical firms. In addition, investors added $4.4 billion of non-US foreign shares to their portfolio, following five months of divestment totalling $8.2 billion. Most major stock markets closed the month at record high levels.
Chart 2
Canadian investment in US equity and investment fund shares
Foreign investment in Canadian shares reaches the highest level since January 2019
Foreign investment in Canadian securities totalled $5.1 billion in December. The activity in the Canadian debt market reflected foreign acquisitions of private corporate paper moderated by a divestment in federal government enterprise bonds. Foreign investment in the Canadian stock market reached its highest level since January 2019.
Non-resident investors added $7.7 billion of private corporate paper to their holdings in December, marking the largest investment since October 2016. This activity mostly reflected new issues of US dollar-denominated paper by Canadian banks. At the same time, foreign investors reduced their holdings of federal government enterprise bonds by $6.9 billion, mainly retirements of Canadian dollar-denominated instruments.
Foreign investment in Canadian shares totalled $6.9 million in December, the largest investment since January 2019. This activity was led by acquisitions of shares from all major industries except the banking sector. Canadian equity prices, as measured by the S&P/TSX composite index, edged up in the month to end the year at a record high level.
Chart 3
Foreign investment in Canadian equity and investment fund shares
Record foreign investment in Canadian debt securities in 2020
On an annual basis, foreign investors acquired a record amount of $141.1 billion of Canadian debt securities in 2020. In comparison, during the global financial crisis, in 2009, this activity totalled $86.5 billion. Federal government debt securities accounted for more than half of the foreign investment in 2020, as non-resident investors purchased $38.3 billion of federal government bonds and $37.3 billion of federal government money market instruments in the year. The overall borrowing needs from the federal government increased substantially in 2020 to support Canadian enterprises and households impacted by the COVID-19 pandemic. Foreign creditors contributed significantly to these financing activities, particularly in the first half of the year.
Overall, foreign investors reduced their holdings of Canadian equities by $14.1 billion in 2020. The investment trend changed over the year as they sold $33.2 billion of Canadian shares in the first half of the year but purchased $19.1 billion in the second half.
Canadian investment in foreign securities focuses on US shares in 2020
In 2020, Canadian investors acquired $40.0 billion of foreign securities, compared with acquisitions of $8.7 billion in 2009. The investment activity resumed strongly following a record divestment of $42.0 billion in March, when the global pandemic intensified and major stock markets posted substantial losses.
The bulk of the activity in 2020 was in US shares. After an unprecedented divestment of $29.2 billion in March, Canadians bought $70.2 billion of US shares in rest of the year. US share prices, as measured by the S&P 500 composite index, ended the year with a record high level, up 43.7% from March.
Meanwhile, resident investors added $20.9 billion of US corporate bonds and sold $21.5 billion of US government bonds.
Note to readers
The data series on international transactions in securities covers portfolio transactions in equity and investment fund shares, bonds, and money market instruments for both Canadian and foreign issues. This activity excludes transactions in equity and debt instruments between affiliated enterprises, which are classified as foreign direct investment in the international accounts.
Equity and investment fund shares include common and preferred equities, as well as units or shares of investment funds. For the sake of brevity, the terms "shares" and "equity and investment fund shares" can have the same meaning.
Debt securities include bonds and money market instruments.
Bonds have an original term to maturity of more than one year.
Money market instruments have an original term to maturity of one year or less.
Government of Canada paper includes Treasury bills and US-dollar Canada bills.
All values in this release are net transactions unless otherwise stated.
Next release
Data on Canada's international transactions in securities for January will be released on March 16.
Products
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