Foreign investors continued to purchase Canadian securities in October, buying $3.8 billion worth. Purchases were roughly split between Canadian bonds and equities.

Chart 1
Foreign portfolio investment in Canadian securities

Meanwhile, Canadians acquired $3.8 billion in foreign securities after buying $5.0 billion in September. Purchases of foreign bonds continued to dominate although investment in foreign equities rebounded from a flat September.

Foreign holdings of Canadian bonds increase

After purchasing $1.8 billion of Canadian bonds in September, non-resident investors bought a further $2.0 billion in October. Foreign investment over the month occurred almost entirely in provincial government issues, led by new issues. These acquisitions were somewhat offset by a reduction in foreign holdings of corporate issues, led by a large amount of net retirements (new issues less retirements) in that sector.

Overall, investors out of the United Kingdom were the primary buyers of Canadian bonds in October followed by those out of Asia. However, these transactions were partly offset by American investors sharply reducing their holdings. On a currency basis, foreign investors acquired $2.8 billion worth of Canadian bonds denominated in overseas currencies — the largest investment in such instruments since July 1998. At the same time, foreign investors purchased $717 million of Canadian dollar denominated bonds while divesting $1.5 billion of US dollar denominated bonds.

Transactions in Canadian money market paper were relatively flat in October, as non-residents acquired $181 million worth. Purchases occurred entirely in federal government and federal government enterprise paper, as all other sectors saw a decrease in foreign holdings.

Non-residents continue to invest in Canadian equities

Foreign investors continued purchasing Canadian equities in October, buying $1.6 billion worth, and marking the fourth straight month of foreign investment in the sector. Over this four month period, non-residents have acquired over $9 billion of Canadian shares.

Purchases consisted entirely of outstanding issues in October, with non-residents buying $4.0 billion worth, the largest investment in secondary shares for the year. Despite a fall in natural resource prices in October, foreign investors continued to acquire shares of Canadian resource firms over the month. However, purchases of Canadian outstanding shares were partially offset by other transactions, largely the result of a foreign takeover of a Canadian firm whose foreign shareholders exchanged their shares for cash.

Canadians add to their holdings of foreign securities

With their holdings of foreign securities already up substantially in 2005, Canadian investors purchased a further $3.8 billion worth in October. The bulk of the month's investment occurred in foreign bonds as Canadians made purchases of $2.7 billion, all of it in US treasury bonds, making it the largest Canadian investment in these securities since November 2002.

Chart 2
Canadian portfolio investment in foreign securities¹

In line with their investment in US government bonds, Canadians purchased US government money market paper for the fifth straight month, $324 million worth in October. However, this was more than offset by divestments in other US and overseas paper, leading to an overall reduction in holdings of foreign short-term instruments of $333 million.

Meanwhile, Canadian investors acquired $1.5 billion in foreign equities in October after no change in September. They continued to invest substantially in US equities ($1.8 billion) while divesting some of their holdings of overseas shares.