Canada's international transactions in securities, December 2021
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Released: 2022-02-17
Foreign investment in Canadian securities totalled $37.6 billion in December, the largest investment since April 2020. At the same time, Canadian investors increased their holdings of foreign securities by $21.3 billion, led by purchases of US instruments.
As a result, international transactions in securities generated a net inflow of funds of $16.3 billion in the Canadian economy in December. For the whole year, cross-border portfolio investment reached unprecedented levels, both in Canada and abroad. This activity resulted in a net inflow of funds in the economy of $51.9 billion in 2021, down from $90.9 billion in 2020 on the strength of investment in foreign securities by Canadian investors.
Chart 1
Canada's international transactions in securities
Foreign investment in Canadian securities led by issuances of new shares
Foreign investment in Canadian securities accelerated at the end of 2021 to reach $37.6 billion in December, the largest investment since April 2020.
After a divestment of $1.3 billion in November, foreign investment in Canadian shares amounted to $16.9 billion in December, the largest investment since February 2017. Issuances of new Canadian shares to foreign portfolio investors resulting from cross-border mergers and acquisitions led the investment in December. Sales by non-residents on the secondary market moderated the total investment in Canadian shares. The overall activity largely targeted shares of the trade and transportation industry.
Chart 2
Foreign investment in Canadian equity and investment fund shares, by type of transaction
Foreign investors acquired $20.6 billion in Canadian debt securities in December. They added $12.8 billion of money market instruments to their portfolios, mainly private corporate instruments. In addition, they acquired $7.8 billion of Canadian bonds, mainly federal government bonds. In December, Canadian long-term interest rates declined following an upward trend that began in August 2021.
Canadian investment in US securities continues
Canadian acquisitions of foreign securities reached $21.3 billion in December following strong purchases in November. After acquiring $7.4 billion of US shares in November, Canadian investors added $13.4 billion worth to their holdings in December. US stock prices, as measured by the Standard and Poor's 500 composite index, were up by 4.4% in December.
Chart 3
Canadian investment in US equity and investment fund shares
Meanwhile, Canadian investors added $6.3 billion of foreign debt securities to their portfolios, the 11th consecutive month of investment in these instruments. Acquisitions of US government bonds, the largest since July 2018, contributed the most to the investment activity in December.
Cross-border portfolio investments reach unprecedented levels in 2021
On an annual basis, foreign investors acquired a record amount of $217.8 billion in Canadian securities in 2021, a level of activity that is more than twice as high as the average annual investment recorded over the last decade. Foreign investment in government debt securities remained strong in 2021 as borrowing needs to support Canadian enterprises and households impacted by the COVID-19 pandemic were still present. In addition, foreign investment in corporate debt securities increased substantially to reach $80.7 billion, up from $37.8 billion in 2020.
Foreign investors increased their holdings of Canadian equities by $46.0 billion, their largest investment since 2017. In comparison, non-resident investors reduced their overall exposure to Canadian equities by $14.0 billion in 2020. Canadian share prices, as measured by the Standard and Poor's/TSX composite index, went up by 21.7% in 2021, after a slight increase of 2.2% in 2020.
Chart 4
Foreign investment in Canadian securities, by type of instrument, annual
In 2021, Canadian investors acquired an unprecedented $165.9 billion of foreign securities, up significantly from 2020 and well above the previous high of $84.7 billion observed in 2017. The bulk of the activity in 2021 targeted US shares, with purchases of $95.1 billion, mainly shares issued by large capitalization technology firms. US share prices ended the year at record high levels, up 26.9% from December 2020. Meanwhile, investors increased their holdings of foreign bonds by $52.5 billion compared with a slight divestment in 2020. This activity reflected strong purchases of both US bonds (+$28.8 billion) and non-US bonds (+$23.8 billion). Interest rates in major foreign countries increased in 2021.
Chart 5
Canadian investment in foreign securities, by type of instrument, annual
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 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" 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 2022 will be released on March 18, 2022.
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